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von Mises 


Copyright © 1962 by Columbia University Press 

Copyright © 1973 by AMS Press 

Copyright © 2007 by Ludwig von Mises Institute 

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Preface vii 

I. The Panic and Its Genesis: Fluctuations In 

American Business, 1815— 21 1 

II. Direct Relief of Debtors 37 

III. State Proposals and Actions for Monetary Expansion . . .81 

IV. Proposals for National Monetary Expansion 149 

V. Restricting Bank Credit: Proposals and Actions 179 

VI. The Movement for a Protective Tariff 209 

VII. Conclusion 241 


Appendix A Minor Remedies Proposed 251 

Appendix B Chronology of Relief Legislation 259 

Bibliography 263 

Index 279 


The Panic of 1819 was America’s first great economic crisis and 
depression. For the first time in American history, there was a crisis 
of nationwide scope that could not simply and direcdy be attributed 
to specific dislocations and restrictions — such as a famine or wartime 
blockades. Neither could it be simply attributed to the machinations 
or blunders of one man or to one upsetting act of government, 
which could be cured by removing the offending cause. In such a way 
had the economic dislocations from 1808—15 been blamed on “Mr. 
Jefferson’s Embargo” or “Mr. Madison’s War.” 1 In short, here was a 
crisis marked with strong hints of modern depressions; it appeared to 
come mysteriously from within the economic system itself. Without 
obvious reasons, processes of production and exchange went awry. 

Confronted with a new, vital phenomenon, Americans looked 
for remedies and for understanding of the causes, the better to 
apply the remedies. This epoch of American history is a relatively 
neglected one, and a study of the search for remedies presents an 
instructive picture of a people coming to grips with the problems 
of a business depression, problems which, in modified forms, were 
to plague Americans until the present day. 

1 WR. Scott found that early business crises in England — in the sixteenth and 
seventeenth centuries — were attributable to specific acts of government rather 
than to the complex economic causes that marked modern depressions. WR. 
Scott, The Constitutions and Finance of English, Scottish, and Irish Joint-Stock Companies 
to 1720 (Cambridge, Mass.: Cambridge University Press, 1912), pp. 465-67. 

The Panic of 1 81 9 


The 1819—21 period in America generated internal controversies 
and furnished a rich economic literature. The newspapers in partic- 
ular provide a relatively untapped vein for study. The leading editors 
were sophisticated and influential men, many of them learned in 
economics. The caliber of their editorials was high and their rea- 
soning keen. The newspaper editors constituted, in fact, some of 
the leading economists of the day. 

The depression galvanized the press; even those papers that 
had been wholly devoted to commercial advertisements or to par- 
tisan political squabbles turned to writing and arguing about the 
“hard times.” 

In order to provide the setting for the discussion of remedial 
proposals, Chapter I presents a sketch of the economy and of the 
events of the postwar period. The postwar boom and its culmina- 
tion in the crisis and depression are also set forth. In addition to its 
major function of indicating the economic environment to which 
the people were reacting, this chapter permits us to decide to what 
extent the depression of 1819—21 may be considered a modern 
business-cycle depression. 

The bulk of the work deals with the remedial proposals them- 
selves, and the speculations, controversies, and policies arising from 
them. Arguments were especially prevalent over monetary propos- 
als, debtors’ relief — often tied in with monetary schemes — and a 
protective tariff. At the start of the depression each of these prob- 
lems was unsettled: the tariff question was not resolved; the mone- 
tary system was new and troublesome. But the depression greatly 
intensified these problems, and added new aspects, and made solu- 
tions more pressing. 2 

2 Very little work has been done on the Panic of 1819, either on its events 
or on contemporary opinion and policies. Samuel Rezneck’s pioneering article 
dealt largely with Niles’ Register and the protectionist controversy. William E. 
Folz’s unpublished dissertation was devoted mainly to a description of the 
events of the pre-Panic period, especially in the West. Thomas H. Greer’s use- 
ful article dealing with the Old Northwest overemphasized the traditional sec- 
tional and class version of debtors’ relief controversies, in which the West was 



This book would never have come into being without the inspi- 
ration, encouragement, and guidance of Professor Joseph Dorf- 
man. I am also indebted to Professors Robert D. Cross, Arthur F. 
Burns, and Albert G. Hart for many valuable suggestions. 

considered to be almost exclusively in favor of debtors’ relief and the East 
opposed. Samuel Rezneck, “The Depression of 1819—1822: A Social History,” 
American Historical Review 49 (October 1933): 28-47; William E. Folz, “The 
Financial Crisis of 1819 — A Study in Post-War Economic Readjustment” 
(unpublished Ph.D. dissertation, University of Illinois, 1935); Thomas H. 
Greer, “Economic and Social Effects of the Depression of 1819 in the Old 
Northwest,” Indiana Magazine of Historj 49 (September 1948): 227-43. 


The Panic and Its Genesis: 
Fluctuations In 
American Business 1815-21 

The War of 1812 and its aftermath brought many rapid disloca- 
tions to the young American economy. Before the war, America had 
been a large, thinly populated country of seven million, devoted 
almost exclusively to agriculture. Much cotton, wheat, and tobacco 
were exported abroad, while the remainder of the agricultural pro- 
duce was largely consumed by self-sufficient rural households. 
Barter was extensive in the vast regions of the frontier. Commerce 
was largely devoted to the exporting of agricultural produce, which 
was generally grown close to river transportation. The proceeds 
were used to import desired manufactured products and other con- 
sumer goods from abroad. Major export products were cotton and 
tobacco from the South, and grain from the West. 1 The cities, which 
contained only 7 percent of the country’s population, were chiefly 
trading depots channeling exports to and from abroad. 2 New York 
City was becoming the nation’s great foreign trade center, with 
Philadelphia and Boston following closely behind. 

The monetary system of the country was not highly developed. 
The banks, outside of New England at least, were confined almost 
exclusively to the cities. Their methods tended to be lax; government 

^For a general survey of the American economy of this period, see 
George Rogers Taylor, The Transportation Revolution, 1815—60 (New York: 
Rinehart and Co., 1951). 

2 Total United States population was 7.2 million in 1810, 9.6 million in 
1820. U.S. Department of Commerce, Historical Statistics of the United States, 
1789-1945 (Washington, D.C, 1949), p. 25. 



The Panic of 1 81 9 

control was negligible; and the fact that most banks, like other cor- 
porations of the period, had to gain their status by special legislative 
charter, invited speculative abuses through pressure on the legisla- 
ture. The result was a lack of uniformity in dealing with banks within 
and between states. 3 Until 1811, the existence of the First Bank of 
the United States had influenced the banks toward uniformity 7 . The 
currency of the United States was on a bimetallic standard, but at the 
legal ratio of fifteen-to-one gold was undervalued, and the bulk of 
the specie in circulation was silver. Silver coins were largely foreign, 
particularly Spanish, augmented by coins minted in Great Britain, 
Portugal, and France. 4 * 

Before the war, the American economy lacked large, or even 
moderate-scale, manufactures. “Manufacturing” consisted of small- 
scale, often one-man, operations. The manufacturers were artisans and 
craftsmen, men who combined the function of laborer and entrepre- 
neur: blacksmiths, tailors, hatters, and cobblers. A very large amount 
of manufacturing, especially textiles, was done in the home and was 
consumed at home. Transportation, too, was in a primitive state. Most 
followed the time-honored course of the rivers and the ocean, while 
costly land transport generally moved over local dirt roads. 

The War of 1812 and postwar developments forced the Ameri- 
can economy to make many rapid and sudden adjustments. The 
Anglo-French Wars had long fostered the prosperity of American 
shipping and foreign trade. As the leading neutral we found our 
exports in great demand on both sides, and American ships took 
over trade denied to ships of belligerent nations. With the advent of 
the Embargo and the Non-Intercourse Acts, and then the war itself, 
however, our foreign trade was drastically curtailed. Foreign trade 
had reached a peak of $138 million in imports and $108 million in 
exports in 1807, and by 1814 had sunk to $13 million imports and 

3 The banks were largely note -issue institutions. The big-city banks were 
already using deposits, but there is little or no information about them. 

4 U.S. Congress, American State Papers: Finance 3, no. 559, January 26, 1819 

(Washington, D.C.: Gales and Seaton, 1834), p. 398. 

The Panic and Its Genesis 3 

$7 million exports. 5 On the other hand, war conditions spurred the 
growth of domestic manufactures. Cotton and woolen textiles, those 
bellwethers of the Industrial Revolution, were the leaders in this 
development. These goods were formerly supplied by Great Britain, 
but the government now required them for war purposes. Domestic 
manufactures grew rapidly to fill this demand as well as to meet con- 
sumer needs no longer met by imports. Households expanded their 
production of textiles. Of far more lasting significance was the 
growth of textile factories, especially in New England, New York, 
and Pennsylvania. Thus, while only four new cotton factories were 
established during 1807, forty- three were established during 1814, 
and fifteen in 181 5. 6 Leading merchants, finding their capital idle in 
foreign trade, turned to invest in the newly profitable field of domes- 
tic manufactures. Some of these factories adopted the corporate 
form, hitherto largely confined to banks, insurance and bridge com- 
panies. The total number of new factories incorporated in the lead- 
ing manufacturing states of Massachusetts, Connecticut, New York, 
New Jersey, and Maryland, averaged sixty-five a year from 1812 to 
1815, compared with eight per annum before the war. 7 

The war wrought great changes in the monetary system as well. 
It brought heavy pressure for federal government borrowing. New 
England, where the banks were more conservative, was opposed to 
the war and loaned only negligible amounts to the government, and 
the federal government came to rely on the mushrooming banks in 
the other states. These banks were primarily note-issuing institutions, 

5 U.S. Department of Commerce, Historical Statistics, p. 245. 

6 Clive Day, “The Early Development of the American Cotton Manufac- 
ture,” Quarterly Journal of Economics 39 (May 1925): 452. 

7 U.S. Congress, “Digest of Manufactures, Supplement,” American State 
Papers: Finance 4, no. 691 (Washington, D.C., 1834), p. 397ff. Also George 
Heberton Evans, Jr., Business Incorporations in the United States, 1800—1943 (New 
York: National Bureau of Economic Research, 1948), pp. 12—21. 


The Panic of 1 81 9 

generally run on loose principles. 8 Little specie was paid in as capital, 
and it was quite common for the stockholders to pay for their bank 
stock with their own promissory notes, using the stock itself as the 
only collateral. Usually, the officers and stockholders of the banks 
were the most favored borrowers in their own institutions. Con- 
tributing to the expansion of the note issue was the practice of print- 
ing notes in denominations as low as six cents. With the restraint of 
the Bank of the United States removed, and the needs of govern- 
ment finance heavy, the number of new banks and the quantity of 
note issue multiplied rapidly. The great expansion of bank notes out- 
side of New England contrasted with the conservative policy of the 
New England banks, and led to a drain of specie from other states 
to New England. The relative conservatism of New England banks 
is revealed by the fact that Massachusetts bank notes outstanding 
increased but slowly — from $2.4 million to $2.7 million from 1811 
to 1815. Furthermore, specie in the bank vaults increased from $1.5 
million to $3.5 million in the same period. 9 

There was no uniform currency except specie that could be 
used in all areas of the country. Furthermore, the government, bor- 
rowing Middle Atlantic, Southern, and Western bank notes, had to 
make heavy expenditures in the New England area for imported 
supplies and for newly burgeoning textile goods manufactured in 
that region. The resulting specie drain and the continuing bank 
note expansion led inevitably to a suspension of specie payments 
outside the New England area in August 1814. The government 
agreed to this suspension, and the banks continued in operation — 
the exchange rate of each bank’s notes varying widely. The notes of 
the suspended banks depreciated at varying rates with respect to 

8 Allan G. Gruchy, Supervision and Control of Virginia State Banks (New York: 
D. Appleton-Century and Co., 1937), pp. 14—18, 48-56; Davis R. Dewey, State 
Banking Before the Civil War (Washington, D.C.: U.S. Government Printing 
Office, 1910). 

9 U.S. Comptroller of the Currency, Annual Report, 1876 (Washington, 
D.C.: U.S. Government Printing Office, 1876), p. xxxixffi; Albert Gallatin, Con- 
siderations on the Currency and Banking Systems of the United States (Philadelphia: 
Carey and Lea, 1831); and Boston, New England Palladium, July 27, 1819. 

The Panic and Its Genesis 


the New England bank notes and to specie. The suspension of the 
obligation to redeem gready spurred the establishment of new 
banks and the expansion of bank note issues. The number of 
banks in the United States rose from 88 in 1811 to 208 in 1815, 
while bank notes outstanding rose from $2.3 million to $4.6 million 
in the same period. 10 Expansion was particularly large in the Middle 
Adantic states, notably Pennsylvania. The number of banks in the 
Middle Adantic states increased from 25 to 1 1 1 in this period, while 
banks in the southern and western states increased from 16 to 34. 
Pennsylvania incorporated 41 banks in the month of March, 18 14. 11 

The war also saw a great rise in prices. Prices of domestic goods 
rose under the impact of the rapid expansion of the money supply; 
prices of imported goods rose further as a result of the blocking of 
foreign trade. Domestic commodity prices rose by about 20—30 per- 
cent; cotton, the leading export staple, doubled in price. Imported 
commodity prices rose by about 70 percent. 12 

The first war of the new nation, therefore, wrought many unset- 
tling changes in the American economy. Trade was blocked from its 

10 Gallatin, Considerations on the Currency, p. 281; William M. Gouge, A Short 
History of Paper Money and Ranking (New York: B. and S. Collins, 1835), pp. 61, 
405f£; U.S. Treasury Department, Reports of the Secretary of the Treasury of the 
United States (Washington, D.C., Blair and Rives, 1837), vol. 2, pp. 481-525. 

^See also Dewey, State Ranking, pp. 63-68; John Jay Knox, History of Rank- 
ing in the United States (New York: B. Rhodes and Co., 1900), p. 445; for an 
account of small denomination paper, see J.T. Scharf and T. Westcott, History 
of Philadelphia, 1669—1884 (Philadelphia: L.H. Everts and Co., 1884), vol. 1, 
p. 581; for an account of West Virginia bank expansion, see Charles H. Ambler, 
Thomas Ritchie, A Study in Virginia Politics (Richmond, Va.: Bell Book and Sta- 
tionery Co., 1913), pp. 66-67. 

12 Walter Buckingham Smith and Arthur H. Cole, Fluctuations in American 
Rusiness, 1790-1860 (Cambridge, Mass.: Harvard University Press, 1935), 
pp. 146, 185; Anne Bezanson et al., Wholesale Prices in Philadelphia, 1784-1861 
(Philadelphia: University of Pennsylvania Press, 1936), vol. 2, pp. 352-55, 409; 
Arthur H. Cole, Wholesale Commodity Prices in the United States, 1700—1861 (Cam- 
bridge, Mass.: Harvard University Press, 1938), vol. 1, p. 161. 


The Panic of 1 81 9 

former channels, the monetary system became disordered, expan- 
sion of money and a shortage of imported goods drove prices 
upward, and domestic manufactures — particularly textiles — devel- 
oped under the spur of government demand and the closing of for- 
eign supply sources. The advent of peace brought its own set of 
problems. After the wartime shortages, the scramble for foreign 
trade was pursued in earnest. Americans were eager to buy foreign 
goods, particularly British textiles, and the British exporters were 
anxious to unload their accumulated stocks. Total imports rose from 
$5.3 million in the last prewar year to $113 million in 1815, and to 
$147 million in 1816. 13 British exports to the United States alone 
totaled $59 million in 1815, and $43 million in 1816. 14 The renewal 
of the supply of imported goods drastically lowered the prices of 
imports in the United States and spurred American demand. 
Imported commodity prices at Philadelphia, for example, fell in one 
month (March, 1815) from an index of 231 to 178. Import prices 
continued to sag afterwards, reaching 125 by early 1817. 15 

The ability and eagerness to import was increased by the con- 
tinued inflation and credit expansion of the banks, which still were 
not obliged to redeem in specie. Furthermore, the federal govern- 
ment aided imports by allowing from several months to more than a 
year for payment of import duties. British and other foreign exporters 
were willing to grant short-term credits on a large scale to American 
importers, and these credits played a major role in meeting the large 
balance of trade deficit in the postwar years. A further spur to 
imports, again particularly in British textiles, was the emergence of 

13 These are Treasury estimates for fiscal years ending September 30. U.S. 
Treasury Department, Bureau of Statistics, Monthly Summary of Imports and 
Exports for the Fiscal Year 1896 (Washington, D.C.: U.S. Government Printing 
Office, 1896), pp. 622-23. Official data on United States imports are not avail- 
able before 1821. 

14 Timothy Pitkin, Statistical Vieu> of the Commerce of the United States of 
America, 3rd ed. (New Haven, Conn.: Durrie and Peck, 1835), p. 294; and Wor- 
thy P. Sterns, “The Beginning of American Financial Independence,” Journal of 
Political Economy 6 (1897-98): 191. 

15 Smith and Cole, Fluctuations, p. 147; Bezanson, Wholesale Prices, vol. 1, p. 353. 

The Panic and Its Genesis 


a system of selling these goods at auction sales instead of through 
regular import channels. British manufacturers found that auction 
sales through agents yielded quicker returns; the lower prices were 
compensated by the lower costs of operation. The auction system 
flourished, particularly in New York City. Total auction sales in the 
United States during 1818 were $30 million. In New York City they 
totaled $14 million, in contrast to $5 million before the war. Half of 
these sales consisted of European dry goods, in contrast to a sale of 
$1 million of American-made dry goods. 16 

The influx of imports spelled trouble for war-grown manufac- 
tures, especially textiles, which suddenly had to face the onrush of 
foreign competition. The manufacturers did not share in the general 
postwar prosperity. Bezanson’s index of prices of industrial com- 
modities at Philadelphia (including such products as dyes, chemicals, 
metals, textiles, sugar, soap, glass), which had increased from 141 to 
214 during the war period, fell abruptly to 177 in March, 1815, and 
continued to fall, reaching 127 in March, 1 81 7. 1 7 This drop indicates 
the difficulties confronting the fledgling manufacturers. The house- 
holds which had increased textile manufacturing during the war 
could easily suspend their work as imports resumed, but the new 
factories had invested capital at stake. A few of the up-to-date fac- 
tories, such as the famous cotton textile firm of Waltham, Massa- 
chusetts — a pioneer in American mass production, using the new 

16 Ray B. Westerfield, “Early History of American Auctions — A Chapter in 
Commercial History,” Connecticut Academy of Arts and Sciences, Transactions 13 (May 
1920): 164—70; “Observer,” Review of Trade and Commerce of New York, 1815-to- 
Present (New York, 1820); J. Leander Bishop, A Histoiy of American Manufac- 
tures, 1608-1866 (Philadelphia: E. Young and Co., 1864), vol. 2, pp. 256f£; 
New York Legislature, Assembly Documents, No. 10 (Albany, 1843), pp. 130f£; 
Victor S. Clark, Histoiy of Manufactures in the United States, 1607—1860 (Wash- 
ington, D.C.: Carnegie Institute, 1916), vol. 2, pp. 241f£; Arthur H. Cole, The 
American Wool Manufacture (Cambridge, Mass.: Harvard University Press, 1926), 
vol. 1, pp. 156f£, 217; Horace Secrist, “The Anti- Auction Movement and the 
New York Workingmen’s Party of 1829,” Wisconsin Academy of Sciences, Arts, 
and Tetters, Transactions 17, Part 1 (1914): 166. 

17 Bezanson, Wholesale Prices, vol. 1, p. 355. 

The Panic of 1 81 9 

power loom to make plain white sheeting for lower income cus- 
tomers — could easily withstand the competition, but most factories 
were hard-pressed. 18 The decline continued for several years; new 
factories incorporated in five leading manufacturing states averaged 
nine per annum from 1817—19, in contrast to sixty-four per annum 
in the war years. 19 

American exports continued to expand greatly, however, 
although by far less than imports. Europe’s hunger for agricultural 
staples was stimulated by poor postwar crops abroad, and the prices 
and values of American staples exported, notably cotton and 
tobacco, increased greatly. Such leading customers as Britain and 
France led the surge in European demand. In spite of this, exports 
never reached the peak prewar totals. Re-exports of foreign goods 
fared badly, never attaining more than one-third of their prewar 
level, when neutral ships of the United States had a virtual monop- 
oly of the European carrying trade. Domestic exports totaled 
$46 million in the fiscal year 1815, and $65 million in 1816, compared 
to a prewar peak of $49 million. Re-exports, on the other hand, 
totaled $7 million in 1816, and $17 million the next year, compared to 
the prewar peak of $60 million. 20 The net balance of foreign trade, in 
sum, was a deficit of $60 million for the fiscal year of 1815, and of 
$65 million for the fiscal year 1816. Agricultural produce accounted 

18 For an account of the difficulties of the cotton and woolen industry 
after the war, see Caroline F. Ware, The Early New England Cotton Manufacture 
(Boston: Houghton Mifflin Co., 1931), pp. 66, 126ff.; Bishop, A History, 
pp. 21 Iff., 236; “Reports of House Committee on Commerce and Manufac- 
tures,” U.S. Congress, American State Papers: Finance, vol. 3, pp. 32-35, 82f£, 103, 
461; Cole, American Wool Manufacture, pp. 85, 144, 152f£; Report of House 
Committee on Domestic Manufactures,” Pennsylvania Legislature, Journal of the 
House, 1818—20 (January 28, 1820): 413; and J.T. Scharf, History of Delaware 
(Philadelphia: L.J. Richards and Co., 1888), vol. 2, pp. 304ff. 

19 Day, Early Development, p. 452; Norman S. Buck, Development and Orga- 
nisation of Anglo-American Trade, 1800-1850 (New Haven, Conn.: Yale Uni- 
versity Press, 1925), pp. 134-47. See also Evans, Business Incorporations, 
pp. 12-30; Ware, Early New England, pp. 56ff. 

20 Trade restrictions, however, had already reduced re-exports to $16 mil- 
lion by 1811, the immediate prewar year. Pitkin, Statistical View of Commerce, 

The Panic and Its Genesis 


for $14 million of the $19 million increase in domestic exports from 
1815 to 1816. Agricultural produce exported rose from $38 million in 
the fiscal year 1815 to $52 million in 1816. Cotton furnished about 
half of the agricultural exports, and tobacco, wheat, and flour formed 
the bulk of the remainder. Of the exports in 1815, cotton was $17.5 
million, tobacco was $8 million, and wheat and flour exports totaled 
$7 million. In 1816, cotton increased to $24 million, and tobacco to 
$13 million. 21 

Prices of American exports increased as a result of increased 
European demand and monetary expansion at home. The boom in 
export values was largely a price and not a physical production phe- 
nomenon. Cole’s index of export prices at Charleston rose from 93 
in March 1815, to 138 in March 1817, and cotton prices rose even 
more in the same period. The physical quantity of cotton produced 
and exported, on the other hand, increased slowly in these years. 22 

The rise in export values and the monetary and credit expansion 
led to a boom in urban and rural real estate prices, speculation in the 
purchase of public lands, and rapidly growing indebtedness by 
farmers for projected improvements. The prosperity of the farmers 
led to prosperity in the cities and towns — so largely devoted were 
they to import and export trade with the farm population. 

The postwar monetary situation was generally considered intol- 
erable. Banks continued to expand in number and note issue, with- 
out the obligation of redeeming in specie, and their notes continued 
to depreciate and fluctuate from bank to bank, and from place to 
place. 23 The number of banks increased from 208 to 246 during 

p. 35; U.S. Treasury, Monthly Summary; and Emory R. Johnson, et al., Histoiy of 
Domestic and Foreign Commerce of the United States (Washington, D.C.: Carnegie 
Institute, 1915), vol. 2, pp. 31ff. On exports from the principal cities, see 
Robert G. Albion, The Rise of the New York Port (New York: C. Scribner’s Sons, 
1939), p. 390. 

21 Pitkin, Statistical View of Commerce, pp. 95-144. 

22 Cole, Wholesale Commodity Prices, p. 161; Pitkin, Statistical View of Com- 
merce, pp. 108-15. 

23 William M. Gouge, Journal of Ranking (Philadelphia: J. Van Court, 1842), 
pp. 346, 355. 


The Panic of 1 81 9 

1815 alone, while the estimated total of bank notes in circulation 
increased from $46 million to $68 million. 24 There was a great desire 
for nationwide uniformity in the currency, and the Treasury chafed 
under the necessity of receiving depreciated bank notes from its sale 
of public lands in the West, while it had to spend the bulk of its 
funds in the East in far less depreciated money. It was clear, how- 
ever, that the inflated banks could not return immediately to specie 
convertibility without an enormous contraction of credit and defla- 
tion of the money supply. As an attempted solution, a Second Bank 
of the United States was authorized by Congress. It was required to 
redeem its notes in specie, and was expected to provide a sound and 
uniform currency. It began operations in January, 1817, but the state 
banks agreed to resume specie payments by February 20, under the 
proviso that the new Bank discount by that date a minimum of $2 
million in New York, $2 million in Philadelphia, $1.5 million in Bal- 
timore, and $500 thousand in Virginia — a minimum of $6 million. 23 
The banks also extracted a pledge of support in emergencies. The 
Bank, indeed, was not averse to a credit expansion of its own. Its 
main office and southern and western branches soon overfulfilled 
their promises. It was run as a strictly profit-making enterprise, 
under very liberal rules. Like many of the state banks, the Second 
Bank of the United States accepted its second and later installments 
of capital in the form of IOUs instead of specie. Eventually, such 
stock loans totaled $10 million, and the loans were particularly 
heavy to the important Philadelphia and Baltimore officers and 
directors of the Bank. 26 Control over the branches of the Bank was 
negligible, and the southern and western branches greatly expanded 
their credits and note issues. The officers of the Baltimore branch, 

24 New note issue series by banks reached a heavy peak in 1815 and 1816 
in New York and Pennsylvania. D.C. Wismer, Pennsylvania Descriptive List of 
Obsolete State Lank Notes, 1782—1866 (Fredericksburg, Md.: J.W. Stovell Print- 
ing Co., 1933); and idem, New York Descriptive List of Obsolete Paper Money (Fred- 
ericksburg, Md.: j.W. Stovell Printing Co., 1931). 

25 U.S. Congress, American State Papers: Finance 4, no. 705 (March 22, 
1824): 759. 

26 Dewey, State Banking, pp. 6-21. 

The Panic and Its Genesis 


indeed, engaged in outright embezzlement. By the beginning of 
1818, the Bank had loaned over $41 million. Its note issue out- 
standing reached $10 million, and its demand deposits $13 million, 
for a total money issue of $23 million, contrasted to a specie reserve 
of about $2.5 million. ~ 

The boom therefore continued in 1818, with the Bank of the 
United States acting as an expansionary, rather than as a limiting, 
force. The expansionist attitude of the Bank was encouraged by the 
Treasury, which wanted the Bank to accept and use the various 
state bank notes in which the Treasury received its revenue, partic- 
ularly its receipts from public land sales. 28 The expansion of its 
note issue encouraged the state banks throughout the country, 
especially outside New England, to multiply and continue their 
credit expansion. The number of banks had increased from 246 in 
1816 to 392 in 1818. Kentucky alone chartered 40 new banks in the 
1817—18 session. 29 Bank expansion was spurred by the decision of 
the Bank of the United States and the Treasury to treat the notes 
of nominally resuming banks as actually equivalent to specie. The 
Bank thereby accumulated balances and notes against the private 
banks without presenting them for redemption. Many of these 
notes were original Treasury balances which had been deposited 
with the Bank but not claimed from the state banks. In New Eng- 
land, on the other hand, both the private banks and the branches 
of the Bank of the United States pursued a conservative policy. 

27 For data, see Walter Buckingham Smith, Economic Aspects of the Second Bank 
of the United States (Cambridge, Mass.: Harvard University Press, 1953), p. 49. 
Also U.S. Comptroller of the Currency , Annual Report, 1876, p. 261; R.C.H. Cat- 
terall, The Second Bank of the United States (Chicago: University of Chicago Press, 
1903), p. 501. Other assets of the Bank were $9.5 million in government bonds, 
$2.7 million due from state banks. Capital totaled $35 million. 

28 Folz, “Financial Crisis,” p. 164; Smith, Economic Aspects, pp. 105, 112; U.S. 
Congress, American State Papers: Finance 4, no. 705 (March 22, 1824): 523. 

29 A contemporary estimated the number of banks in 1818 at 500. 
“Philotheus,” Baltimore Federal Republican, July 9, 1819. Also Gouge, Journal, 
pp. 223-26; New York Legislature, Senate Journal, 1819 January 26, 1819): 66-70. 


The Panic of 1 81 9 

Indeed, they were forced to contract, as the New England branches 
of the Bank were continually forced to payout specie on the 
expanded note issue of the western and southern branches, since 
by prevailing Bank rule, all branches were liable for the notes of all 
other branches. As a result, the notes of the Massachusetts banks 
declined from a total of $1 million in June, 1815 to $850 thousand 
by June, 1818. 30 

A generally uniform currency prevailed throughout the country, 
most bank notes circulating at par/’ 1 There were exceptions, how- 
ever; during 1818, for example, notes of some banks in Pennsylva- 
nia were depreciated by as much as 30 percent, and in Virginia, Ken- 
tucky, and Tennessee by as much as 12 percent/’ 2 

Investment in real estate, turnpikes, and farm improvement proj- 
ects spurted, and prices in these fields rose. Furthermore, the fed- 
eral government facilitated large-scale speculation in public lands by 
opening up for sale large tracts in the Southwest and Northwest, 
and granting liberal credit terms to purchasers. 33 Public land sales, 
which had averaged $2 million to $4 million per annum in 1815 and 
1816, rose to a peak of $13.6 million in 1818. 34 

30 N.S.B. Gras, The Massachusetts First National Bank of Boston, 1784—1934 
(Cambridge, Mass.: Harvard University Press, 1937), pp. 710-11. 

-’Tknox, History of Banking, pp. 485-86. 

- ,2 Gouge, Short History, pp. 166ff. 

’^Purchasers were only required to pay one-fourth of the total within 
forty days of purchase, and the penalty of forfeiture for failure to complete 
payment in five years was repeatedly postponed by Congress. U.S. Congress, 
The Public and General Statutes Passed ly the Congress of the United States of America 
(Boston: Wells and Lilly, 1827), vols. 2 and 3 , passim. 

24 See the data compiled from the records of the General Land Office, in 
Smith and Cole, Fluctuations, p. 185; and in Arthur H. Cole, “Cyclical and Sea- 
sonal Variations in the Sale of Public Lands, 1816-60,” Review of Economic Sta- 
tistics 9 January 1927): 42ff. Also Thomas P. Abernethy, The Formative Period in 
Alabama, 1 81 5— 28 (Montgomery, Ala.: Brown Printing Co., 1922), p. 50ff; C.F. 
Emerick, The Credit System and the Public Domain (Vanderbilt, Tenn.: Southern 
History Society Publication No. 3, 1898); U.S. Congress, American State Papers: 
Finance 3, p. 10; and 4, pp. 859-61. 

The Panic and Its Genesis 


Speculation in urban and rural lands and real estate, using bank 
credit, was a common phenomenon which sharply raised property 
values. 35 Furthermore, this speculation increased Treasury balances 
in western banks, and added to the flow of the Bank’s notes from 
west to east. Federal construction expenditures also helped to fur- 
ther the boom: they rose from $700 thousand in 1816 to over $14 
million in 1818. 36 Beginning in 1816, there was a construction boom 
in turnpikes, especially in New York, Maryland, and western Penn- 
sylvania. 1 ' Turnpikes were built by corporations, each of which 
received special charters from the states, and corporations in turn- 
pike construction rivaled new banks in number. The share of trans- 
portation in the boom is also demonstrated by high and rising 

35 On a building boom in New York City, see the comment by an influen- 
tial merchant of the day, John Pintard, letters to His Daughter, vol. 1: 1816-20 
(New York: New York Historical Society, 1940), November 16, 1818, p. 154. 
Also New York Gazette, February 4, 1818. On a rental and property value 
boom in other states, U.S. Congress, Annals of Congress of the United States, 17th 
Congress, 1st Session (1821—22), March 12, 1822, pp. 1281—97; Washington 
(D.C.) National Intelligencer (July 24, 1819); Thomas Cushing, ed., Histoiy of 
Allegheny County, Pennsylvania (Chicago: A. Warner and Co., 1889), p. 547; 
William E. Connelley and E.M. Coulter, History of Kentucky (Chicago: Ameri- 
can Historical Society, 1922), vol. 2, p. 593; Waldo F. Mitchell, “Indiana’s 
Growth, 1812-20,” Indiana Magazine of Histoiy 10 (December 1914): 385; Hat- 
tie M. Anderson, “Frontier Economic Problems in Missouri, 1815—28,” Mis- 
souri Historical Review 34 (October 1939): 48f£; Dorothy B. Dorsey, “The Panic 
of 1819 in Missouri,” Missouri Historical Review 29 (January 1935): 79-80; 
Report of J.H. Brown at 1st Annual Meeting of Kentucky Bar Association, in 
William Graham Sumner, Histoiy of Ranking in the United States (New York: 
Henry Holt and Co., 1896), p. 89; Charles H. Garnett, State Ranks of Issue in 
Illinois (Urbana University of Illinois, 1898), p. 7; Pennsylvania Legislature, 
Journal of the Senate, 1819—21 (February 14, 1820): 311-37. On the rise in the 
price of slaves during the boom, John L. Conger, “South Carolina and Early 
Tariffs,” Mississippi Halley Historical Review 5 (March 1919): 415-25. 

36 U.S. Department of Commerce, Historical Statistics, pp. 169, 219—20. 

’ Taylor, Transportation Revolution, pp. 23, 336. 


The Panic of 1 81 9 

freight rates on steamboats, which were just beginning operation. 38 
Shipbuilders also shared in the boom prosperity. 39 

It does not seem accidental that the boom period saw the estab- 
lishment of the first formal indoor stock exchange in the country: 
the New York Stock Exchange opened in March, 1817. Traders had 
been buying and selling stocks on the curbs in Wall Street since the 
eighteenth century, but now they found it necessary to form a defi- 
nite association and rent indoor quarters. The period also marked 
the beginning of investment banking: commercial banks and indi- 
vidual bankers bought blocks of stock and sold them in small lots 
on the market or sold the stocks as agents of the issuer. Prominent 
in this new business were former merchants in foreign trade who 
had accumulated capital, such as Alexander Brown and Sons, and 
persons with fortunes amassed elsewhere, such as Astor and Son. 40 

As a result of the monetary and credit expansion, imports con- 
tinued at a high rate, exceeding the rising exports, and financed by 
specie outflow and by credits from foreign merchants. After the 
rush for imports in 1815 and 1816, import values, though remain- 
ing at a relatively high level, declined in 1817. This temporary 
decline from peak levels was spurred by the uncertainties surround- 
ing the return of the banking system to specie payment in 1817, and 
the consequent relative slackening in monetary expansion during 
that period. However, imports increased sharply again in 1818 to 
$122 million. Imports of foreign goods into Cincinnati — the major 
western depot — doubled in 1817—18 over the 1815—16 totals. 41 In 

- ,8 Thomas S. Berry, Western Prices Before 1861 (Cambridge, Mass.: Harvard 
University Press, 1943), pp. 32, 45f£ On the heavy increase in costs of trans- 
porting convicts, see Pennsylvania Legislature, Journal of the Senate, 1820—21 
(April 3, 1821): 816. 

- ,9 U.S. Congress, House, Annual Report of the Commissioner of Navigation, 
1901 , 57th Congress, 1st Session, House Document No. 14, p. 585. 

40 Joseph E. Hedges, Commercial Banking and the Stock Market Before 1863 
(Baltimore: Johns Hopkins University Press, 1938). 

41 U.S. Treasury, Monthly Summary; Cincinnati, Cincinnati Directory, 1819 
(Cincinnati, Ohio, 1819), p. 52. 

The Panic and Its Genesis 


contrast, prices of imported goods, determined largely by condi- 
tions outside America, remained almost constant during these years. 

Exports, helped by European prosperity and poor crops abroad, 
continued to rise in price and value. They rose to $88 million in 
1817 and reached a peak of $93 million in 1818. Exports of domes- 
tic products also rose to a peak of $74 million in that year. Even re- 
exports reached a postwar peak in 1818, although the increase over 
1816 was negligible. Agricultural exports rose to $57 million in 1817 
and to a peak of $63 million in 1818, advancing at a faster rate than 
domestic exports as a whole. Agricultural exports rose by $5 million 
in 1817 and $5.4 million in 1818, while aggregate domestic exports 
rose by $3.5 million and $5.6 million respectively. Cotton exports 
also reached a peak in the latter year. 42 Prices of export staples rose 
even more rapidly during this period. Cole’s index of export staple 
prices at Charleston rose from 138 in March, 1817 to 169 in August, 
1818. A similar rise occurred in Bezanson’s cotton index. 43 

The net result in the balance of trade was a sharp drop in the 
trade deficit to $11.6 million in 1817, and a later rise to $28.5 mil- 
lion in 1818. 44 The large deficits of the postwar years are partly 
overstated, for some were offset by earnings of American shipping, 
which carried almost all American foreign trade — the earnings of 
which do not appear in the trade balance. 45 

Troubles and strains, however, began to pile up as the boom 
continued. The resumption of specie payments by the banks was 
increasingly more nominal than real. Obstacles and intimidation 
were the lot of those who attempted to press the banks for payment 

42 Pitkin, Statistical View of Commerce, pp. 95-144; Smith, Economic Aspects, 

p. 280. 

43 Cole, Wholesale Commodity Prices, p. 161; Bezanson, Wholesale Prices, vol. 2, 
pp. 67-70. Also Smith, Economic Aspects, pp. 72-75; George Rogers Taylor, 
“Wholesale Commodity Prices at Charleston, South Carolina, 1796-1861,” 
Journal of Economic and Business Histoiy 4 (August 1932): 856-70. 

44 Taylor, Transportation Revolution, pp. 200-202. 

45 The order of magnitude of these earnings was approximately $3 million. 
See Pitkin, Statistical View of Commerce, p. 166. 


The Panic of 1 81 9 

in specie . 46 As the Philadelphia economist, merchant, and State Sen- 
ator Condy Raguet wrote to Ricardo: 

You state in your letter that you find it difficult to com- 
prehend, why persons who had a right to demand coin 
from the Banks in payment of their notes, so long for- 
bore to exercise it. This no doubt appears paradoxical to 
one who resides in a country where an act of parliament 
was necessary to protect a bank, but the difficulty is eas- 
ily solved. The whole of our population are either stock- 
holders of banks or in debt to them. It is not the interest 
of the first to press the banks and the rest are afraid. This 
is the whole secret. An independent man, who was nei- 
ther a stockholder or debtor, who would have ventured 
to compel the banks to do justice, would have been per- 
secuted as an enemy of society. 47 

The consequent loss of confidence in the banks was demon- 
strated by the emergence of a premium for specie on the market. 
The discount on bank notes made it more difficult for the banks 
maintaining specie payment to retain specie in their vaults, since 
people could redeem their notes for specie, and sell it for bank notes 
at a discount. Specie came to be at a premium in terms of Bank of 
United States notes, even though the Bank was required to pay in 
specie. This reflected a lack of confidence in the Bank’s ability to 

46 On the general attitude of hostility by the public as well as the banks 
toward attempts to redeem notes in specie, see Crawford, Report; Dewey, State 
Ranking, pp. 73-79f£, 107f£; Niles’ Weekly Register 13 (August 2, 1817): 357; 9 
(February 7, 1817): 32; 14 (June 20, 1818): 281, 285; 14 (May 30, 1818): 225; 
New York Legislature, “Report on Committee on Currency,” Journal of the 
Assembly (February 24, 1818): 307-11; Knox, A History of Ranking, p. 576. On 
an agreement by the banks of Philadelphia not to redeem balances against 
each other without delay, see Flarry E. Miller, Ranking Theories in the United 
States Refore 1860 (Cambridge, Mass.: Harvard University Press, 1927), p. 215. 

47 Condy Raguet to David Ricardo, April 18, 1821, in David Ricardo, Minor 
Papers on the Currency Question, 1809—23, Jacob Hollander, ed. (Baltimore: The 
Johns Hopkins Press, 1932), pp. 199—201. 

The Panic and Its Genesis 


continue specie payments. A premium on Spanish silver dollars — 
the major coin circulating in the United States — appeared in March, 
1818, and reached 4 percent by June and 6 percent by November. 48 
The specie drain from the Bank vaults increased, adding to the 
heavy external drain for payment of imports. It became evident that 
the Bank could not long continue expanding its notes and paying 
out specie at such a rapid rate. Importations of specie from abroad 
by the Bank, totaling over $7 million and purchased at a heavy price, 
proved only a temporary expedient. The problem was aggravated by 
the pressure resulting from rapid repayment of the Federal debt. 
The autumn of 1818 and early 1819 were the scheduled dates for 
the repayment of the “Louisiana debt,” which had financed the 
Louisiana Purchase. Most of this debt — amounting to over $4 mil- 
lion — was owed abroad, and it had to be repaid in specie. The 
responsibility for meeting the payments fell on the Bank of the 
United States, the repository for the Treasury’s deposits. 

Faced with these threatening circumstances, the Bank of the 
United States was forced to call a halt to its expansion and launch a 
painful process of contraction. Beginning in the summer of 1818, 
the Bank precipitated the Panic of 1819 by a series of deflationary 
moves. The branches of the Bank were ordered to call on the state 
banks to redeem heavy balances and notes held by the Bank. The 
requirement that each branch redeem the notes of every other 
branch was rescinded, thus ending the liability of the conservative 
eastern branches to redeem the notes of expansionist branches. The 
Boston branch began this move in March, and it was made general 
for all the Bank’s offices by the end of August. The contractionist 
policy, begun hesitantly under the presidency of William Jones and 
continued more firmly under the direction of his successor Lang- 
don Cheves, sharply limited and contracted the loans and note 

48 On the silver premium, see Raguet Report, in Ricardo, Minor Papers, 
pp. 223-31; Smith, Economic Aspects, pp. 106, 123-24, 283, 286; James Flint, 
Tetters from America, vol. 9, Earlj Western Travels, 1748—1846, Reuben G. 
Thwaites, ed. (Cleveland, Ohio: A.H. Clark Co., 1904-07), p. 136. 


The Panic of 1 81 9 

issues of the branches. As a result, total demand liabilities of the 
Bank, including notes, private and public deposits, declined precip- 
itately from $22 million in the fall of 1818 to $12 million in January, 
1819, and to $10 million by January, 1820. Of this amount, notes 
outstanding of the Bank fell from a peak of $10 million in early 

1818, to $8.5 million in the fall of 1818, less than $5 million by the 
summer of 1819, and $3.6 million by January, 1820. Particularly 
striking was the decline in the Bank’s public deposits, consisting 
largely of bank debts accumulated from public land sales. They 
declined from $9 million in the autumn of 1818 to less than $3 mil- 
lion in January, 1819. 40 

Another result of contraction was a large rise in the Bank’s specie 
reserve, which had been about $2.5 million during 1818 and early 

1819. As loans were recalled, and the specie drain reversed, specie 
flowed into the Bank and reached $3.4 million in January, 1820. Specie 
reserves spurted to $8 million in the spring of 1821, at a time when 
total demand liabilities of the Bank were less than $12 million. 511 

The contractionist policy forced the state banks, in debt to the 
Bank, to contract their loans and notes outstanding at a rapid pace. 
Total bank notes in circulation were estimated at $45 million in Jan- 
uary, 1820, as compared to $68 million in 1816. 51 The severe mone- 
tary contraction, lasting through 1 820, led to a wave of bankruptcies 

49 Smith, Economic Aspects, p. 49. 

50 Ibid., pp. 40, 119, 286. Also see Catterall, Second Bank, p. 503. 

51 Gallatin, Considerations, pp. 45-51; Delaware General Assembly, Journal of 
the House of Representatives, 1819 January 28): 104—06; New Hampshire Gazette, 
August 19, 1817; John J. Walsh, Early Banks in the District of Columbia, 
1792—1818 (Washington, D.C.: Catholic University of America Press, 1940), 
pp. 49, 80, 82, 123f£, 168. Massachusetts banks, in contrast, were able to 
expand their note issues slightly from 1818—21; Gras, Massachusetts First 
National Bank, pp. 44-49. Also see Wismer, New York Descriptive List and Penn- 
sylvania Descriptive List, passim. 

The Panic and Its Genesis 


throughout the country, particularly outside New England. In many 
cases, banks attempted to continue in operation while refusing specie 
payment, but their notes depreciated greatly and no longer circulated 
outside the vicinity of issue. The notes of most of the inland banks 
depreciated and fluctuated in relation to each other. New England, 
in contrast, was the only area little touched by bank failures or runs; 
the banks outside of Rhode Island remained solvent. 5- The entire 
hastily built private credit structure was greatly shaken by the con- 
traction and wave of defaults. 53 The financial panic led, as did later 
panics, to a great scramble for a cash position, and an eagerness to 
sell stocks of goods at even sacrifice rates. 

The severe contraction of the money supply, added to an 
increased demand for liquidity, led to a rapid and very heavy drop in 
prices. Although detailed price information is available only for 
wholesale commodities, there is evidence that prices fell in many 
other fields, such as real estate values and rents. Most important for 
the American economy were the prices of the great export staples, 
and their fall was remarkably precipitate. The index of export sta- 
ples fell from 169 in August 1818, and 158 in November, 1818, to 
77 in June, 1819. A similar movement occurred in the price of cot- 
ton and in the Smith and Cole index of domestic commodity prices. 

52 Folz, “Financial Crisis,” pp. 170—86; and Louis R. Harlan, “Public Career 
of William Berkeley Lewis,” Tennessee Historical Quarterly 7 (March 1948): 13; 
Sister M. Grace Madeleine, Monetary and Tanking Theories of Jacksonian Democracy 
(Philadelphia: The Dolphin Press, 1943), p. 14. 

53 On business failures and debt judgments, Niles’ Weekly Register 16 (May 8, 
June 7, 1819): 179-80, 258-62; Richmond Enquirer, April 23, May 25, June 4, 
September 3, 1819; Philadelphia Poulson’s American Daily Advertiser, June 19, July 
29, August 5, 1822. On the difficulties of domestic manufactures in the depres- 
sion, Bishop, A Histoiy, vol. 2, 248-53, 256-63; Ware, Early New England, 
pp. 67-68; Cole, Wholesale Prices, vol. 1, pp. 147ff.; and Theodore G. Gronert, 
“Trade in the Blue-Grass Region, 1810-1820,” Mississippi Valley Historical Review 
5 (1918): 313—23. On the failure of lead mines in the crisis, Ruby J. Swartzlow, 
“The Early History of Lead Mining in Missouri,” Missouri Historical Review 29 
(January 1935): 114. 


The Panic of 1 81 9 

Evidence of falling prices can be seen in freight rates and in the 
prices of slaves. 54 

The fall in export prices was aggravated by a fall in European 
demand for agricultural imports, occasioned by the abundant Euro- 
pean crops after 1817 and the crisis and business contraction in 
Britain during the same period. Values of American exports 
declined sharply as well. Total exports fell from $93 million in 1818 
to $70 million in 1819 and 1820. Re-exports did not contract, and 
the brunt was taken by domestic exports, which fell from $74 mil- 
lion to $51 million. Of this drop, $20 million was accounted for by 
agricultural exports ($10 million by cotton and $7 million by wheat 
and flour). It was a pure price decline, since the physical volume of 
exports continued to increase steadily during this period. 5-1 

Imports fell even more in value than did exports, reflecting the 
decline in American incomes. Total imports fell drastically from 
$122 million in 1818 to $87 million in 1819 and $74.5 million in 

54 Cole, Wholesale Prices, p. 161; Smith and Cole, Economic 'Fluctuations, p. 146; 
and Berry, Western Prices, pp. 71-74, 81-83; Arthur H. Cole, Wholesale Commod- 
ity Prices in the United States, 1700—1861 (Cambridge, Mass.: Harvard University 
Press, 1938), Supplement, pp. 182-91; Thomas S. Berry, “Wholesale Commod- 
ity Prices in the Ohio Valley, 1816-60,” Review of Economic Statistics 17 (August 
1935): 92; Taylor, “Wholesale Commodity Prices at Charleston;” Walter Buck- 
ingham Smith, “Wholesale Commodity Prices in the United States, 
1795-1824,” Review of Economic Statistics 9 (October 1927): 181-83; Swartzlow, 
“Early History,” p. 201; Frederick W. Moore, “Fluctuations in Agricultural 
Prices and Wages in the South,” The South in the Building of the Elation (Rich- 
mond, Va.: Southern Historical Publishing Society, 1909), vol. 5, pp. 426-34. 
For the fall in the price of and return on slaves, Francis Corbin to James Madi- 
son, October 10, 1819, Massachusetts Historical Society, Proceedings 43 (January 
1910): 261; Smith, Economic Aspects, pp. 78-79, 280. On the fall in rental and 
property values, see Clark, History, pp. 378-86; Richmond Enquirer, August 5, 
1820; Connelley and Coulter, History, p. 599; Malcolm R. Eiselen, The Rise of 
Pennsylvania Protectionism (Philadelphia, 1932), pp. 44ff. 

55 Historical Statistics, pp. 245-48; Pitkin, Statistical View of Commerce, 
pp. 95-144; and James W. Livingood, The Philadelphia-Baltimore Trade Rivalry, 
1780—1860 (Harrisburg: Pennsylvania Historical Commission, 1947), pp. 
18-20, 89, 142. 

The Panic and Its Genesis 


1820, thus practically ending the specie drain. Imports from Great 
Britain fell from $42 million in 1818 to $14 million in 1820, and cot- 
ton and woolen imports from Britain fell from over $14 million 
each in 1818 to about $5 million. 56 

During 1821, total exports and total imports are listed as almost 
identical, $54.6 million for the former and $54.5 million for the lat- 
ter. Both were absolute low points, not only for the period of boom 
and depression but for America since ISIS. 37 Import prices also fell 
with the advent of economic contraction abroad. They fell only 
slightly, however, and were a negligible factor in the reduction of 
import values, as compared to the decrease in money income at 
home. The index of import prices at Philadelphia fell from 126 to 
112 from November, 1818 to July, 1819. 58 

The credit contraction also caused public land sales to drop 
sharply, falling from $13.6 million in 1818, to $1.7 million in 1820, 
and to $1.3 million in 1821. Added to a quickened general desire 
for a cash position, it also led to high interest rates and common 
complaint about the scarcity of loanable funds. 

Economic distress was suffered by all groups in the community 7 . 60 
The great fall in prices heavily increased the burden of fixed money 
debts, and provided a great impetus toward debtor insolvency. 61 The 

^Historical Statistics, p. 248; Pitkin, Statistical View of Commerce, pp. 180-82. 

^Historical Statistics, pp. 239-40, 245. 

58 Cole, Wholesale Prices, pp. 148, 165; Smith and Cole, Economic Fluctuations, 
p. 147; Bezanson, Wholesale Prices, p. 353. 

59 Smith and Cole, Economic Fluctuations, p. 185. 

60 One indication of the general decline in business activity was the con- 
siderable decline in total letters carried by the U.S. Post Office, a decline the 
more remarkable for interrupting a period of rapid secular growth, and 
despite continuing increase in the number of post offices and miles of post 
roads. Letters carried declined from a peak of 9.6 million in 1819 to 8.5 mil- 
lion in 1821. Wesley E. Rich, The Historj of the United States Post Office to the Year 
1829 (Cambridge, Mass.: Harvard University Press, 1924), p. 183. 

61 Smith, Economic Aspects, p. 124. 


The Panic of 1 81 9 

distress of the farmers, occasioned by the fall in agricultural and real 
estate prices, was aggravated by the mass of private and bank debts 
that they had contracted during the boom period. Borrowing for 
long-term improvements, farmers had been served by the new and 
gready expanded banks of the South and West, as well as by the 
western branches of the Bank of the United States. Bank stock- 
holders who had borrowed on the basis of unpaid stock found 
themselves forced to meet their debts. Speculators and others who 
had bought public lands during the boom were now confronted with 
heavy debt burdens. Merchants suffered from the decline in prices 
and demand for their produce and from heavy debts. Their debts to 
the British as well as to domestic creditors were often canceled by the 
ruthless process of bankruptcy. Niles judged that no less than $100 
million of mercantile debts to Europe were eliminated by bank- 
ruptcy during the depression. So low were prices and so scarce was 
the monetary medium in the frontier areas that there was a consid- 
erable return to barter conditions among farmers and other local 
inhabitants. Various areas returned to barter or the use of such 
goods as grain and whiskey as media of exchange. 62 

There was widespread resort to the bankruptcy courts and to 
judgments for debt payment. The plight of debtors in the West was 
well expressed by William Greene, secretary to Governor Ethan Allen 
Brown of Ohio, in a memorandum to the Governor, in April, 1 820: 

One thing seems to be universally conceded, that the 
greater part of our mercantile citizens are in a state of 
bankruptcy — that those of them who have the largest 
possessions of real and personal estate . . . find it almost 

62 On whiskey as a medium of exchange in the crisis, see Alfred E. Lee, 
Histoiy of the City of Columbus (New York: Numsell and Co., 1892), vol. 1, 
pp. 368-69; on grain as a principal medium, see Greer, “Economic and Social 
Effects,” p. 232. On barter, see Charles F. Goss, Cincinnati, the Queen City, 
1788-1912 (Chicago: S.J. Clarke Co, 1912), vol. 1, opp. 140f£; Dorsey, “The 
Panic of 1 81 9,” p. 85; J. Ray Cable, The Bank of the State of Missouri (New York: 
Columbia University Press, 1923), p. 24; James A. Kehl, Ill-Feeling in the Era of 
Good Feeling (Pittsburgh: University of Pittsburgh Press, 1956), p. 188. 

The Panic and Its Genesis 


impossible to raise sufficient funds to supply themselves 
with the necessaries of life — that the citizens of every 
class are uniformly delinquent in discharging even the 
most trifling of debts. 63 

Manufacturers suffered from the general decline in prices as well 
as from the contraction in credit, and the panic served to intensify 
their generally depressed condition since the end of the war. How- 
ever, the progressive factory at Waltham was able to withstand the 
bufferings of the depression, to continue profitable operations, and 
even to expand throughout the depression period. 64 

Evidence is very scanty on the behavior of wage rates during 
this period. In Massachusetts, the wages of agricultural workers 
fluctuated sharply with the boom and contraction, averaging sixty 
cents per day in 1811, $1.50 in 1818, and fifty-three cents in 1819. 
The wage rates of skilled labor, on the other hand, remained stable 
throughout at approximately $1 per day. 65 In Pennsylvania, wood- 
cutters who averaged a wage of thirty-three cents per cord in the 

63 William Greene, “Thoughts on the Present Situation and Prospect of the 
Western Country, April 21, 1820,” in “A New Englander’s Impressions of 
Cincinnati in 1820 — Letters by William Greene,” Rosamund R. Wulsin, ed., 
Bulletin of the Historical and Philosophical Society of Ohio 7 (April 1949): 116-22. 
Also Annals of Cleveland, 1818-20 (Cleveland: WPA in Ohio, 1938), vol. 1, 
pp. 398, 479, 539, 543, 569, 590, 629, 649; New York American, August 28, 
1819; Harold E. Davis, “Economic Basis of Ohio Politics, 1820M0,” Ohio 
Archaeological and Historical Quarterly 67 (October 1938): 290, 309; Logan Esarey, 
History of Indiana (Indianapolis: B.F. Bowen and Co., 1918), vol. 1, pp. 280ff. 

64 See the above sources on manufactures, including Ware, Early New Eng- 
land, pp. 65-72; Bishop, Histoiy, vol. 2, p. 253; Cole, American Wool Manufacture, 
vol. 1, pp. 147f£; U.S. Congress, American State Papers: Finance, vol. 4, pp. 28f£, 
290ff, 357ff. 

^Massachusetts Department of Labor, “Historical Review of Wages and 
Prices, 1782-1860,” Sixteenth Annual Report (Boston, 1885), vol. 3, pp. 317-28. 
Also see the index of wage rates based on these estimates, in Rufus S. Tucker, 
“Gold and the General Price Level,” Review of Economic Statistics 16 (February 
1934): 24; idem, “Real Wages Under Laissez-Faire,” Barron's 13 (October 23, 
1933): 7. 


The Panic of 1 81 9 

first half of the nineteenth century were paid only ten cents per 
cord in 1821 and 1822. Unskilled turnpike workers paid seventy- five 
cents a day in early 1818 received only twelve cents a day in 181 9. 66 

One of the most significant phenomena of the depression was 
the advent of a new problem casting a long shadow on future events: 
large-scale unemployment in the cities. Although America was still an 
overwhelmingly rural country, the cities — the centers of manufac- 
ture and trade — were rapidly growing, and this depression witnessed 
the problem of unemployment for factory workers, artisans, 
mechanics, and other skilled craftsmen. These workers were often 
independent businessmen rather than employees, but their distress 
was not less acute. Concentrated in the cities, their plight was thereby 
dramatked, and they lacked the flexibility of farmers who could 
resort to barter or self-sufficiency production. In the fall of 1819, in 
thirty out of sixty branches of manufacturing (largely handicraft) in 
Philadelphia, employment in these fields totaled only 2,100, com- 
pared to 9,700 employed in 1815. There was a corresponding decline 
in total earnings — from $3 million to less than $700 thousand during 
the later year. Very drastic declines in employment took place in the 
cotton, woolen, and iron industries. 67 Unemployment also swelled 
the ranks of the paupers during the depression. 68 

66 William A. Sullivan, The Industrial Worker in Pennsylvania, 1800-1840 (Har- 
risburg: Pennsylvania Historical and Museum Commission, 1955), pp. 68, 72. 

67 See the report of a Committee of Citizens of Philadelphia, headed by 
Condy Raguet, in Niles’ Weekly Register 17 (October 23, 1819): 116; also U.S. 
Congress, American State Papers: Finance 3, p. 641; Matthew Carey, Essays in Polit- 
ical Economy (Philadelphia: Carey and Lea, 1822): 319-20; Niles’ Weekly Register 
16 (August 7, 1819): 385 and 21 (September 1, 1821): 1; Flint, Fetters, pp. 236, 
248; Rezneck, “The Depression,” pp. 29-32; Minutes of the Common Council of 
the City of New York 9 (December 10, 1819), 663. 

68 A report of the Female Hospitable Society of Philadelphia blamed the 
increase in pauperism during 1819—20 on unemployment there. Benjamin J. 
Klebaner, Public Poor Relief in America, 1790—1860 (New York: Columbia Uni- 
versity, microfilmed, 1952), pp. 9, 20. 

The Panic and Its Genesis 


By 1821, the depression had begun to clear, and the economy 
was launched on a slow road to recovery. The painful process of 
debt liquidation was over, and the equally painful process of mone- 
tary contraction had subsided. 69 The surviving banks, their notes 
returned to par, successfully expanded credit. The Bank of the 
United States, saved from imminent failure, was at last in a sound 
position. Its branches were again able to redeem each others’ notes, 
and were now more firmly under strong central control. The pre- 
mium on Spanish silver dollars over Bank notes dropped in June, 
1819 from 4 percent to less than 2 percent, and par was restored by 
April, 1820. In states such as Kentucky or Tennessee, however, 
there was no general return to par and redeemability for several 
more years. 70 Business in Britain and continental Europe was also 
past the trough of depression, and American exports began to 
recover both in prices and in total values. Prices, in general, which 
had continued sluggish after the steep decline in 1819, began a slow 
rise. Export staples at Charleston, reaching 77 in June 1819, fell to 
a trough of 64 in April, 1821, then slowly rose from that point on. 
In the same month a trough was reached by cotton prices, domes- 
tic commodities at Philadelphia, agricultural commodities, and 
industrial commodities, and each rose very slowly thereafter. Import 
prices, however, continued to fall slightly or remain at a stable 
level. 71 Credit began to be available, and new securities to be heav- 
ily subscribed, both at home and in the British market. Business and 
manufacturing activity began to rise again. 72 

69 See the message of Governor Joseph Hiester to the Pennsylvania Legis- 
lature, December 5, 1821, in Pennsylvania, Vennsylvania Archives, George E. 
Reed, ed., Fourth series 5 (Harrisburg, 1900): 281. 

70 Smith, Economic Effects, pp. 271-72. 

71 See the aforementioned sources on prices. 

72 On the revival of manufacturing activity, see Niks’ Weekly Reg ister 20 
(March 17, 1821): 34—35; Ware, Early New England, p. 88; Philadelphia Union, 
September 4, 1821; Bishop, History, pp. 270, 294, 297; Gronert, “Trade,” 
p. 323; Folz, “Financial Crisis,” pp. 234—35. On revival of trade, see Hattie M. 
Anderson, “Frontier Economic Problems in Missouri, Part II,” Missouri His- 
torical Review 34 (January 1940): 189. 


The Panic of 1 81 9 

Is the crisis of 1819 together with the preceding boom to be 
considered a modern business cycle? Wesley C. Mitchell, in his Busi- 
ness Cycles . . . The Problem and Its Setting, declared that 

until a large part of the population is living by getting and 
spending money incomes, producing wares on a consid- 
erable scale for a wide market, using credit devices, 
organizing in business enterprises with relatively few 
employers and many employees, tire economic fluctua- 
tions which occur do not have tire characteristics of busi- 
ness cycles. . . . 

in the modern sense. 7 ' 1 

On the one hand, the boom, the crisis of 1818—19, and the 
depression until 1821 present many features akin to modern busi- 
ness cycles as interpreted by Mitchell. Although banking had previ- 
ously been undeveloped, this period saw a rapid expansion of banks 
and bank money — unsound as much of the expansion may have 
been. The period also saw much of the typical characteristics of 
later financial panics: expansion of bank notes; followed by a specie 
drain from the banks both abroad and at home; and finally a crisis 
with a contraction of bank notes, runs on banks, and bank failures. 
A corollary to the contraction of loans and bank runs was the 
scramble for a cash position and rapid rise in interest rates during 
the panic. The diversity of bank notes and bank activity from sec- 
tion to section was hardly a modern characteristic, but there was an 
approach to uniformity in expansion and contraction because of 
the existence of the Bank of the United States. As in modern busi- 
ness cycles, the entire contraction and expansion cycle was fairly 
short-lived, totaling five or six years, and the period of crisis itself a 
short one. Furthermore, the sequence of phases was boom, crisis, 
depression, and revival as in the business cycle. 74 

73 Wesley C. Mitchell, Business Cycles, vol. 1: The Problem and Its Setting (New 
York: National Bureau of Economic Research, 1927), p. 75. 

74 Ibid., pp. 76—79. 

The Panic and Its Genesis 


Other modern characteristics were: the expansion of credit and 
of investment projects during the boom; the appearance of urban 
unemployment; and the marked expansion and contraction in prices. 

On the other hand, there were many backward features of the 
economy that go counter to an interpretation of the period as a 
modern business cycle in the Mitchellian sense or the Panic of 1819 
as a modern business crisis. Despite the growth of commerce, it was 
still true that the overwhelming preponderance of economic activity 
in that period was in agriculture. It has been estimated that 72 per- 
cent of the labor force in 1820 was engaged in agriculture.' 3 
Although statistics are not available, it seems from contemporary 
comments that urban construction increased in the boom and 
declined in the crisis. Physical agricultural production is not too 
responsive to cycles, however, and agricultural production represents 
overwhelmingly the greatest part of productive activity during this 
period. 70 Thus, physical production of cotton, rice, wheat, and flour 
continued to grow during the depression period. 77 Certainly farm 
employment is not a markedly cyclical phenomenon. 78 Furthermore, 
many farm households were self-sufficient, and carried on only local 
barter trade, or entered the monetary nexus occasionally. With such 
a prevalence of home sufficiency and barter conditions, the econ- 
omy could hardly be classified as modern, or conditions the same as 
a modern business cycle. 

Furthermore, the manufacturing and business enterprises that 
did exist were mainly small-scale. Modern business cycles are most 

1 ^Historical Statistics, p. 63. 

76 Arthur F. Burns and Wesley C. Mitchell, Measuring Business Cycles (New 
York: National Bureau of Economic Research, 1946), pp. 97n, 408n, 503-05. 

77 George K. Holmes, Cotton Crop of the United States, 1790—191 1 (Washing- 
ton, D.C.: U.S. Department of Agriculture, Bureau of Statistics, 1912), Circular 
32, p. 6; idem, Rice Crop of the United States, 1712—1911 (Washington, D.C.: U.S. 
Department of Agriculture, Bureau of Statistics, 1912), Circular 34, pp. 7—8; 
Smith, Economic Aspects, pp. 24, 306. 

78 The urban commerce engaged in handling farm products was bolstered 
by the high physical production. 


The Panic of 1 81 9 

characteristic in the sphere of large-scale business enterprises and 
large-scale manufacturing. Conditions in this period were quite the 
opposite. Small shops, small banks, small factories comprised the 
enterprises of the day. Rather than a sharp distinction existing 
between employers and numerous laboring employees, most work- 
ers, as we have indicated above, were craftsmen, who worked either 
in very small-scale firms or as independent businessmen, with not 
much marked differentiation. Such were the blacksmiths, shoemak- 
ers, tailors, printers, carpenters. More in the category of employees 
were sailors and unskilled road and canal workers. 

One of the most vital points of difference between the economy 
of that period and of the modern day is the role of manufacturing. 
Not only was it small-scale, and even then largely (approximately 
two-thirds) in self-sufficient households, 79 but the conditions of the 
fledgling factories differed from the rest of the economy. The fac- 
tories were depressed while the rest of the community was boom- 
ing, due to the postwar import of manufactured goods; their 
depression was continued and intensified during the panic. A crisis 
occurring in the midst of a depressed period — as happened to 
much of manufacturing in 1819 — is more a feature of early pre- 
cyclical crisis as described by Mitchell. 8 " Furthermore, in manufac- 
turing fields other than textiles, there were not even glimmerings of 
large-scale factory production. The other leading branches of man- 
ufacture, such as pot and pearl ashes, iron, soap, whiskey, candles, 
leather, lumber products, flour, paper, were the product of house- 
hold and small-scale neighborhood manufactures. An exception was 
the larger flour mills, which expanded rapidly during 1815—16 to 
supply the booming European market. The great preponderance of 

79 Although the flow of manufactured imports after the war dealt a heavy 
blow to household manufactures, particularly in New England and the eastern 
urban areas, household woolen manufactures in the West and even upstate 
New York continued to flourish and expand undisturbed. Cole, American Wool 
Manufacture, vol. 1, pp. 182ff. 

80 Mitchell, Business Cycles, p. 78. 

The Panic and Its Genesis 


flour mills, however, continued to be small, local affairs using local 


streams for power. 

Transportation, so vital in the vast and thinly-populated country, 
stood just on the threshold of advances that would take it far 
beyond its current rude and primitive level. Inland transportation 
traveled mainly on the very costly dirt roads and down flatboats on 
the big rivers such as the Mississippi. The great improvements in 
transportation were just on the horizon: the river steamboats, the 
regular transatlantic packets, the canal boom and the great trade 
opened up by the Erie Canal, and the turnpike boom. But as yet, 
none of these developments had progressed beyond the early, hes- 
itant stages. 

With production and transportation in a relatively backward state, 
with such a large proportion of production on the farms and in self- 
sufficient households, and with the budding factory production fac- 
ing a different course of economic conditions from the rest of soci- 
ety it is apparent that the National Bureau of Economic Research, 
within its own definitions, was correct in beginning its reference 
dates for American business cycles with the 1834—38 cycle and not 
earlier. 8- On the other hand, as the greatest and last major crisis 
before 1836, the panic of 1819 holds considerable interest for the 
study of business cycles and for the present day. It was an economy 
in transition, as it were, to a state where business cycles as we know 
them would develop. Its new shaky, banking structure provided a 
surge of bank notes, while bringing in its wake many modern prob- 
lems of money supply, bank soundness, and bank failure. Its new 
manufactures were the beginning of a great industrial development, 
and initiated national concern with foreign competition and the 
prosperity of industry. Extensive foreign trade brought the country 
in direct relationship to the fluctuations and developments in Euro- 
pean economic conditions. Finally, urban unemployment, that mod- 
ern specter, first became an object of concern with this panic. 

81 Kathleen Bruce, Virginia Iron Manufacture in the Slave lira (New York: The 
Century Co., 1931), p. 127. 

82 Burns and Mitchell, Measuring Business Cycles, pp. 78-79. 


The Panic of 1 81 9 

Faced with the new and burgeoning phenomenon of the panic, 
those Americans opposed to any governmental interference in the 
existing economic structure could take one of two courses: either 
simply deny that any distress existed, or face the facts of depression 
and argue that only individual acts could bring about a cure. The 
former position was the official reaction of the Monroe Adminis- 
tration. 8 ’ In his annual message of December 1818, for example, 
President Monroe ignored the panic completely and hailed the 
abundant harvest and the flourishing of commerce. 84 In the fol- 
lowing annual message, Monroe took brief notice of some currency 
derangement and depression of manufactures, but added that the 
evils were diminishing by being left to individual remedies. 85 By 
November 1820, Monroe was actually rejoicing in the happy situa- 
tion of the country; he admitted some pressure, but declared these 
of no importance. The best remedy for these slight pressures was 
simplicity and economy. 86 In his second Inaugural Address, on 
March 5, 1821, Monroe admitted at last to a general depression of 
prices, but only as a means of explaining the great decline in the fed- 
eral revenue. Despite this, he asserted that the situation of America 
presented a “gratifying spectacle.” 87 A few newspapers echoed this 
theme. An anecdote in the Detroit Gazette inferred that unemploy- 
ment was nothing to worry about, being simply a consequence of 
the laziness of the worker. 88 

83 We shall see, however, that when a problem such as the land debt arose, 
which Monroe considered within the province of the federal government, the 
President was quick to take action. 

84 James D. Richardson, ed., A Compilation of the Messages and Papers of the 
Presidents (New York: Bureau of National Literature, 1897), pp. 608-16. 

85 Ibid., pp. 623-31. Monroe, however, vaguely hinted to Congress that 
domestic manufactures should in some way be supported. 

86 Ibid., pp. 642—49. 

87 Ibid, pp. 655-63. 

88 Detroit Gazette, December 17, 1819. For other attempts to minimize the 
depression, see the New York Daily Advertiser, June 14, 1819, June 25, 1819; 
Philadelphia Union, June 2, 1819; New York Gazette, December 9, 1818; Wash- 
ington (D.C.) Gazette, reprinted in Raleigh Star, June 25, 1819. 

The Panic and Its Genesis 


Of those who recognized the severity of the depression, there 
were scattered expressions of laissez-faire doctrine in opposition to 
all proposals of government intervention. We shall see below that 
the laissez-faire advocates developed their views and elaborated their 
arguments in the process of opposing specific proposals of gov- 
ernment intervention: largely debtors’ relief, monetary inflation, and 
a protective tariff . 89 Of general expressions of laissez-faire , not 
specifically related to proposals for intervention, one cogent expo- 
sition was that of Willard Phillips, young New England lawyer and 
leading Federalist. Phillips declared it outside the province of the 
legislature or of political economists to concern themselves with the 
state of trade or its profitability. For this “is a question which the 
merchants alone are acquainted with, and capable of deciding; and 
as the public interest coincides directly with theirs, there is no dan- 
ger of its being neglected .” 90 The New York Daily Advertiser set 
forth the laissez-faire position at some length. It stressed repeatedly 
that the depression must be allowed to cure itself. How could Con- 
gress remedy matters? It could not stop the people from exporting 
specie; it could not teach the people the necessary virtues of frugal- 
ity and economy; it could not give credit to worthless banks or stop 
overtrading at home. The remedy must be slow and gradual, and 
stem from individuals, not governments. Any governmental inter- 
ference would provide a shock to business enterprise . 91 As the New 
York livening Post succinctly expressed it: “Time and the laws of 
trade will restore things to an equilibrium, if legislatures do not 

89 Some of the proponents of laisseyfaire were in favor of measures to 
restrict bank credit expansion. While these measures hardly preserved the sta- 
tus quo, they were not considered programs of government intervention, but 
rather policies to prevent bank inflation — itself considered an interference 
with market processes. 

90 [Willard Phillips] “Seybert’s Statistical Annals,” North American Review 9 
(September 1819): 207-39. 

91 New York Daily Advertiser, March 6, 1819, August 21, 1819, June 10, 
1819, May 20, 1819, June 17, 1819. The only exception the Advertiser was will- 
ing to make was sumptuary laws, to enforce frugality and limit extravagance, 
but it saw no chance of a free people adopting such legislation. 


The Panic of 1 81 9 

rashly interfere to the natural course of events.” 9- Of the expres- 
sions of /aisse^-faire sentiment in Congress, one of the most promi- 
nent was that of Representative Johnson of Virginia in the course of 
his attack against a proposed protective tariff. His theme was “let the 
people manage their own affairs . . . the people of this country under- 
stand their own interests and will pursue them to advantage .” 93 

Of the individual remedies proposed for the depression, the 
most popular were the twin virtues of “industry” and “economy.” 
Regardless of what specific legislative remedies any writers pro- 
posed, they were certain to add that a necessary condition for per- 
manent recovery was an increase in, or a return to, these two moral 
precepts. The ideas behind these proposed remedies were generally 
implicit rather than explained: “economizing” and living within 
one’s income would prevent an aggravating debt burden from aris- 
ing and reduce any existing one; “industry” meant harder work and 
hence increased production. Another cited advantage of economy 
was that most of the luxury items were purchased from abroad, so 
that an appeal to economy could ease the specie drain, and be urged 
by protectionists as a means of helping domestic manufactures. But 
generally these concepts were thought to need little analysis; they 
were moral imperatives. 

The most extensive treatment of the economy and industry 
theme was a lengthy series of articles by Mordecai Manuel Noah, a 
leader in Tammany Hall and publisher of Tammany’s New York 
National Advocate. Noah’s theme was that the depression could only 
be remedied by individual economies in expenditure. He saw the 
cause of the depression in the indolence and lack of industry among 

92 New York livening Post, June 15, 1819. For other expressions of laissez- 
faire views, see New York Gazette, December 9, 1818; Richmond Correspon- 
dent, in the Boston New England Palladium, May 28, 1819; the charge of Judge 
Ross to the grand jury, Montgomery County, Pennsylvania, Niles’ Weekly Register 
18 (July 1, 1820); Peter Force, National Calendar, 1820 (Washington, 1820), pp. 
214f£; Churchill C. Cambreleng (Signed “One of the People”), An Examina- 
tion of the New Tariff (New York: Gould and Banks, 1821), pp. 19-21. 

93 Washington (D.C.) National Intelligencer, May 5, 1820. 

The Panic and Its Genesis 33 

the people and especially in the influence of the debilitating luxuries 
of high fashion. Noah had a Veblenian conception of the influence 
of the conspicuous consumption of the rich in encouraging extrav- 
agance by the poor. He advocated a return to family manufacture of 
clothing and an end to high fashion .' 14 In imitation of Noah, who 
had signed himself “Howard” in writing these articles, the editor of 
the Philadelphia Union, signing himself “Howard the Younger,” 
pointed out that it was the extravagant spenders who now complain 
of the “scarcity of money .” 93 A quasi-humorous circular — printed 
in the Philadelphia American Daily Advertiser — called for a nation- 
wide society to induce ladies to economize. It was signed by the 
“spirit” of many Revolutionary War heroes . 96 

Some writers went further to say that the depression was really 
having a good effect on the nation, since it forced people to go back 
to the highly moral ways of yesteryear — specifically to industry and 
economy. Thus, the New York Daily Advertiser saw much good from 
the depression; people had become much more economical and had 
established such channels for saving as savings banks and manufac- 
turing associations. The New York American was even more emphatic, 

94 See New York National Advocate, October 2, 16, November 7, 24, 1818; 
February 5, June 5, 18, 30, July 9, 16, 22, 31, August 6, September 3, October 
2, 1819. 

95 Philadelphia Union, August 10, 13, 1819. 

96 See New York Daily Advertiser, June 15, 1819. For other expressions of 
the industry and economy theme, see address of Governor Franklin, North 
Carolina General Assembly, journal of the House, 1821 (November 22): 7-12; 
Address of the Society of Tammany to Its Absent Members (New York, 1819); 
“Homespun,” in New York Commercial Advertiser, October 15, 1819; Jackson 
Memorial, Niles' Weekly Register 19 (September 2, 1820): 9; address of Gover- 
nor James P. Preston, Virginia General Assembly, journal of the House of Dele- 
gates, 1819-20 (December 6, 1819): 6-9; charge of Judge Ross to grand jury, 
Niles’ Weekly Register 18 (July 1, 1820): 321; “Senex;” in New York Columbian, 
February 11, 1819; Baltimore Federal Republican, May 22, 1819; “Experience,” 
in Richmond Enquirer, October 1, 1819; Detroit Gazette, January 29, 1819; 
New York American, October 13, 1819. 


The Panic of 1 81 9 

asserting that waste and indulgence had now been replaced by sober 
calculation, and prudence and morality had been regenerated . 97 

Similar to the theme that individual moral resurgence through 
industry and economy would relieve the depression was the belief 
that renewed theological faith could provide the only sufficient cure. 
The theological view, however, had no economic rationale. Typical 
was the (Annapolis) Maryland Gazette, which declared that the only 
remedy for the depression was to turn from wicked ways to religious 
devotion. 9S A similar position was taken by the General Assembly 
of the Presbyterian Church, which found the only effectual remedy 
in a resurgence of religion and its corollary moral virtues . 99 

If individuals are to economize, then governments should also. 
Drives for legislative retrenchment were generally based upon the 
decline of prices since the onset of the depression. Since the pre- 
ceding boom and price rise had been used as justification for 
increasing governmental salaries, many lawmakers urged that these 
salaries now be cut proportionately in turn. The government, in 
short, was regarded as having an obligation to retrench along with 
its citizens . 100 

97 New York Daily Advertiser, August 21, 1819; New York American, July 1, 
1820. Also see the New York National Advocate, June 8, 1819; “Z.,” in Philadel- 
phia Union, February 17, 1819; and Pintard, Getters, p. 197. 

98 Annapolis Maryland Gazette, June 3, 1819. 

99 Extracts from the Minutes of the General Assembly of the Presbyterian Church of 
the United States of America, 1819 (Philadelphia, 1819), pp. 171-72. The Con- 
vention opened on May 20 in Philadelphia, and consisted mainly of delegates 
from the Middle Atlantic states, particularly upstate New York. 

lori U.S. Congress, American State Papers: Finance 3, no. 589 (April 14, 1820): 
522—25. Actions to cut government salaries were put into effect by the Com- 
mon Council of New York City, by a two-to-one majority of the Virginia 
House, and suggested by the House Finance Committee of the New Jersey 
legislature, and by Governor Joseph Hiester of Pennsylvania. Conservative 
papers urged retrenchment in national spending and the national debt, and 
Thomas Jefferson wrote letters to his friends denouncing the Federal deficit. 
Virginia General Assembly, Journal of the Mouse of Delegates, 1821 (January 23): 
131f£; ibid. (December 11, 1820, January 11, 1821), pp. 30f£, 1 1 Off.; New Jer- 
sey Legislature, Motes and Proceedings of the General Assembly, 1820 (November 1), 

The Panic and Its Genesis 


Many Americans, however, were not content with individual 
remedies and laissez-faire, and they pressed for the adoption of 
numerous proposals of government intervention and attempts at a 
remedy. One of the most striking problems generated by the panic 
was the plight of the debtors. Having borrowed heavily during the 
preceding boom, they were confronted now with calls for repay- 
ment and falling prices, increasing the burden of their debts. A dis- 
cussion of the American search for remedies of the panic will deal 
first with proposals for debtors’ relief. 

p. 18; Pennsylvania Legislature, Journal of the House, 1820 (December 19), p. 
246; Minutes of the Common Council of the City of New York (February 28, 1820), 
p. 756; New York Daily Advertiser, January 1, 1820; New York American, July 
29, 1820; Thomas Jefferson to Thomas Ritchie, December 25, 1820 and Jef- 
ferson to Judge Spencer Roane, March 9, 1821, in Thomas Jefferson, Writings, 
T.E. Bergh, ed. (Washington, D.C.: Thomas Jefferson Memorial Association of 
the United States, 1904), vol. 15, pp. 295, 325. 


Direct Relief 
of Debtors 

The plight of the numerous debtors during the panic was par- 
ticularly arresting, and it inspired many heatedly debated proposals 
for their relief. One important group of debtors hit by the crisis 
were those who had purchased public land on credit from the fed- 
eral government. Congress had established a liberal credit system 
for public lands in 1800. Purchasers were permitted to pay one- 
fourth of the total within forty days after the purchase date and the 
remainder in three annual installments. If the full payment were 
not completed within five years after the purchase date, the land 
would be forfeited. 1 In 1804, the minimum unit of land that could 
be purchased was reduced from 320 to 160 acres, thus further 
spurring public land purchases and debts. A growing backlog of 
indebtedness developed, as Congress repeatedly postponed the 
date of forfeiture for failure to complete payment. 2 The particu- 
larly strong boom in western land sales in the postwar period and 
the secular trend of extensive sales of public domain in the nation’s 
expansion westward resulted in a heavy burden of debt owed to the 
federal government. By 1819, the debt on public lands totaled $23 
million. 3 With the panic making the debt problem urgent, Congress 

Wnited States, Public and General Statutes, vol. 2, pp. 73, 533. 

2 Ibid., vol. 3, pp. 96, 433, 515, 555. Postponement of forfeiture laws were 
passed in 1810, 1812, 1813, 1814, and 1815. 

3 U.S. Congress, Annals of Congress, 16th Congress, 2d Session, p. 15. 



The Panic of 1 81 9 

continued to pass postponement laws, delaying forfeiture for a 
year — in 1818, 1819, and 1820 — but these measures could, at best, 
temporarily postpone the problem. 

What to do about this debt to the federal government was clearly 
a federal problem. President James Monroe, who is generally con- 
sidered to have been completely indifferent to the panic and to any 
remedial measures by government, put the public land debt ques- 
tion before Congress in his annual message of November 1820. 4 He 
brought to the fore one of the leading arguments used by all advo- 
cates of debtors’ relief: namely, that the debtors had incurred their 
debt when prices were very high and now had to repay at a time 
when prices were very low and the purchasing power of the dollar 
unusually high. Monroe did not elaborate on this argument. He sim- 
ply stated the fact and suggested that it might be advisable “to 
extend to the purchasers of these lands, in consideration of the 
unfavorable change, which has occurred since the sale, a reasonable 

Two days after the President’s message, Senator Richard M. 
Johnson of Kentucky presented a resolution to permit debtors to 
relinquish a prorated part of the land which they had purchased, in 
proportion to their failure to pay, while obtaining title to the remain- 
der of the land outright. Thus, a purchaser who was one-quarter in 
arrears could relinquish one-quarter of his land to the government 
and acquire clear title to the rest. 5 It quickly became evident that this 
measure was the major concern of the movement for relief of the 
public land debtors. Shortly afterward, similar resolutions were pre- 
sented by Senators John W. Walker of Alabama, James Noble of 
Indiana, and Jesse B. Thomas of Illinois. 6 The Walker Resolution 

4 Ibid. The message was presented on November 14, 1820. The relief issue 
had been briefly raised late in the previous session in a resolution of the 
Louisiana legislature, but consideration was deferred until the 1820-21 ses- 
sion. Ibid., 16th Congress, 1st Session, p. 467. 

5 Johnson was later to become a key leader in the Jacksonian movement 
and Jackson’s intimate agent. He became vice-president under Van Buren. 

6 Annals of Congress, 16th Congress, 1st Session, pp. 17, 22. 

Direct Relief of Debtors 


provided for complete forgiveness of any interest due on the out- 
standing debt — a move to cancel the existing 6 percent interest 
charged on installments due. Important support for the bill came in 
the annual report to the Senate, on December 5, 1820, by Secretary 
of the Treasury William H. Crawford. 7 Crawford repeated President 
Monroe’s argument that much of the public land had been bought 
at very high prices during a boom period. Crawford was at pains to 
separate such debt relief from legislative interference with private 
contracts. But it was certainly legitimate, he asserted, for the gov- 
ernment, as a creditor, to relax its own demands. Crawford pro- 
posed to allow proportional relinquishment of the unpaid portion 
of land, a 2S—?>lVz percent forgiveness of the total debt, and per- 
mission for the borrower to pay sums due in ten equal annual 
installments without interest. 

The resolutions were referred to the Senate Committee on Pub- 
lic Lands and were the signal for a deluge of petitions on behalf of 
the measure from all of the western states, where the public land 
debtors were concentrated. 8 Several western state legislatures — 
Alabama, Missouri, and Kentucky — sent resolutions asking for pas- 
sage of the measure. The resolutions mentioned not only the 
decline of prices but also other aspects of the depression: The Ken- 
tucky legislature cited the unexpected depression of earnings, prof- 
its, property values, wages, and the depreciation of local currencies 
as helping to impose a burden on the debtors, and thus increasing 
the need for relief. The Alabama legislature cited the “great diminu- 
tion of the circulating medium.” The authors of the various resolu- 
tions did not engage in sustained reasoning to bolster their views. 

The relief bill was reported to the Senate by Chairman Thomas 
of the Public Lands Committee on December 28. It followed the 

7 U.S. Congress, American State Papers: Finance 4, no. 599 (December 5, 
1820): 547f£ 

8 Memorials came from Ohio, Illinois, Indiana, Alabama, Tennessee, and 
Kentucky. Ibid., pp. 22, 36, 77, 99, 116, 126, 130, 131, 134, 141, 153, 212, 249, 
and 436. 


The Panic of 1 81 9 

Crawford proposals closely. The major provision was the permis- 
sion to relinquish the unpaid proportion of the land and attain clear 
tide to the remainder for all those who had purchased public land 
before July 1, 1820. The bill also discharged the interest in arrears 
on the outstanding debt and added two further provisions: (1) the 
remainder of the debt could now be paid in eight annual install- 
ments, without interest charges, and payment of the full debt was 
extended for those who did not wish to take advantage of the relin- 
quishment provision; (2) the grant of a special discount of 37'/2 per- 
cent for debtors who would pay promptly. 

Senator Thomas, in his opening speech for the bill, warned that 
unless the relief were granted, all public land sold on credit would 
be forfeited to the government. 9 He emphasized that the “capacity 
of the community to purchase” was now greatly diminished, com- 
pared to the capacity at the time the land was obtained. At the time 
when most of the debt was contracted the “price of produce of 
every description was more than 100% higher than at present.” 
Shortly after the bulk of the purchases, prices of produce fell to less 
than half their previous height. The burden on the debtors was 
aggravated by the fact that the banks, in their expansion during the 
boom, had liberally furnished money to the purchasers of public 
lands, inducing them to bid up the prices of the land to great 
heights. During the crisis, bank facilities were withdrawn, and banks 
were becoming bankrupt, their notes no longer receivable. The 
resulting destitution of the debtors, concluded Thomas, required 
governmental relief. 

The major controversy over the bill was the question of which 
groups of debtors merited the relief. As reported by the committee, 
relief provisions would be restricted to those who had originally pur- 
chased the land from the government. They did not apply to those who 
had bought the public land with its outstanding indebtedness from 

9 Speech of Thomas, January 11, 1821, U.S. Congress, Annals of Congress, 
16th Congress, 2d Session, p. 156. Thomas was an aristocratic lawyer, formerly 
a Representative from Tennessee, and Federal Judge in Ohio. He nominated 
his friend William Henry Harrison for President in 1840. 

Direct Relief of Debtors 


the previous purchasers rather than from the government directly. 
Illinois Senator Ninian Edwards immediately called for the exten- 
sion of the relief clauses to all public land holders . 10 Edwards 
insisted that the greatest sufferers were those latecomers who had 
bought the land at a very high price from the original purchasers; in 
many cases, the original purchasers had sold the land at a great 
profit to the newcomers, and yet only the original purchasers could 
benefit from the bill. 

In his argument for the relief bill as a whole, Edwards went into 
great detail to excuse the actions of the debtors. The debtors, like 
the rest of the country, had been infatuated by the short-lived, “arti- 
ficial and fictitious prosperity.” They thought that the prosperity 
would be permanent. Lured by the cheap money of the banks, peo- 
ple were tempted to engage in a “multitude of the wildest projects 
and most visionary speculations,” as in the case of the Mississippi 
and South Sea bubbles of previous centuries. Edwards sternly 
reminded the Senate that the government itself had encouraged 
public land purchases by making some of its bonds and other claims 
upon it receivable in payment for the lands . 11 He also pointed to the 
distress prevailing among the debtors citing: the bank failures; the 
great contraction of the money supply; the loss of property values; 
unemployment; and general despair, as well as the fall in prices, all 
highlighting the need for governmental relief. Senator Thomas was 
apparendy convinced by his colleague, and moved to extend the 
application of the relief bill to all holders of public land. The 
amendment was adopted by the Senate . 12 

The Thomas and Edwards arguments for relief legislation were 
repeated by Senator Johnson of Kentucky, who added specifically, 
in excuse for the debtors, that their distress was not caused by their 

10 Ibid., pp. 161-78. Edwards had been Chief Judge of the Kentucky 
Court of Appeals and Governor of Illinois Territory. 

n These were its “Mississippi stock,” made receivable in the Southwest, 
and in claims to its lands in the Northwest. 

,2 On January 30, 1821. Ibid., p. 251. 


The Panic of 1 81 9 

“own imprudence” but by unforeseen changes in the economy, in 
prices, the money supply, and the state of the markets. 1 ' 1 

Senator John Henry Eaton of Tennessee wanted a further 
restriction on the scope of the relief 14 He moved an amendment to 
restrict relief to the actual settlers only, thus withholding relief from 
the mere “speculators” in the public lands. No one rose to defend 
his amendment, which was subjected to a storm of criticism from 
western Senators and from one New Englander. 11 Leading the 
attack was Walker of Alabama. He saw no reason why the govern- 
ment should discriminate among the purchases since they were sold 
to the highest bidders in good faith, and saw no reason why there 
should be a particular premium on setdement. His other major 
argument was that the government itself had fostered speculation 
on public lands. The Eaton Amendment was quickly rejected, but 
another amendment by Eaton drew more support and split the 
western delegation. 10 This was a provision to grant special relief to 
the actual setders by forgiving them an additional 25 percent of 
their unpaid debt. The amendment, however, was finally rejected. 

Aside from the passage of an amendment, offered by Senator 
Nicholas Van Dyke of Delaware, placing a maximum limit on the 
size of the purchase to which the relief would be applied, the bill 
passed through the Senate with litde opposition. It passed by a vote 
of thirty-six to five, and none of the five opponents spoke against 
the principle of the bill. 1 

13 Ibid, pp. 214-22. 

14 Eaton was a lawyer, landowner, and land speculator, and an intimate 
associate of Andrew Jackson, his wife having been Jackson’s ward. He was 
later to be Secretary of War under Jackson. 

15 Ibid., pp. 180, 214—36. The New Englander was Senator Morrill of New 
Hampshire. Other Senators attacking the amendment were Noble of Indiana, 
Johnson of Kentucky, Thomas, and King and Walker of Alabama. 

l^Thus, arguing for the extra relief to settlers were Senators Johnson, 
King of Alabama, Ruggles of Ohio, while on the opposite side were Talbot of 
Kentucky, Edwards, and Noble. 

17 Ibid., p. 333. The bill passed on February 10, 1821. Senator Eaton voted 
for the final bill. 

Direct Relief of Debtors 


Meanwhile, Representative John Crowell of Alabama had taken 
the lead of the pro-relief forces in the House of Representatives by 
submitting a similar bill to the House Public Lands Committee soon 
after the President’s address . 18 When the House received the Senate 
bill, the committee reported it out very quickly without amendments. 
The House debate was distinguished by the one reported speech in 
Congress opposing the principle of the entire bill . 1 1 Interestingly, this 
statement came not from some ultra eastern congressman far 
removed from the scene of the public land holders and their prob- 
lems but from Representative Robert Allen of mid-Tennessee, a 
state that had been one of the centers of pro-relief agitation. Allen 
declared himself opposed completely to the whole principle of leg- 
islative interference with debt contracts. “If the people learn that 
debts can be paid with petitions and fair stories, you will soon have 
your table crowded,” Allen charged. The next step would be debtors 
demanding refunds of their previous payments. Indeed, where was 
the line to be drawn? Furthermore, such legislation constituted spe- 
cial privilege for public land debtors. To the argument that the 
debtors had not got the money for payment Allen calmly retorted 
that, in that case, the government would get the land back, and would 
therefore not be the loser. 

In addition to these general arguments against government inter- 
ference with contract, Allen hit hard at the speculation issue, which 
had been prominent in the Senate debates. He declared that no 
group could be less deserving of relief than the bulk of the public 
land purchasers. Allen, indeed, used the same set of facts that had 
been employed by Thomas and Edwards to denounce rather than 
excuse the debtors. He declared that the debtors had formed com- 
panies, had borrowed heavily from the banks in order to buy public 
land, and thereby these speculators had bid the land away from the 
actual settlers. The speculators had gone into debt never intending 
to pay the price anyway, but only to sell them for a higher price to 
others. Allen was sure that the actual settlers were a thrifty lot who 

18 Ibid., p. 441. 

19 Ibid., pp. 1187-89 and 1221ff. 


The Panic of 1 81 9 

did not run into debt. In a later speech, Allen retorted that the advo- 
cates of the bill, in pleading for the wretched and the poor, did not 
realize that the really poor never bought land. 

There was far more active opposition to the relief bill in the 
House than in the Senate, and it was a minority of western repre- 
sentatives that took the lead in the opposition. Besides Allen, Repre- 
sentatives William McCoy from wealthy, rural Fauquier County, Vir- 
ginia, and Benjamin Hardin of rural Nelson County, Kentucky, 
worked hard to defeat or limit the bill, but without success. 211 Ken- 
tucky Representative George Robertson from rural Garrard County, 
tried to amend the bill to exclude speculators from its benefits and 
confine the bill to actual settlers, but the amendment lost by a small 
majority. Robertson was a leading lawyer who later became Chief 
justice of the Kentucky Court of Appeals. The only victory for the 
anti-relief forces was the defeat of an attempt to make the reduction 
in debt unconditional instead of as a bonus for prompt payment. 21 

The only reply by the relief forces was that of Thomas Metcalf, 
from commercial Lexington, Kentucky, who declared that relief was 
called for particularly since the government’s own policies had 
“beguiled” these debtors into error. 22 

The bill finally passed the House on February 28 by a vote of 97 
to 40. 23 Following is a geographic breakdown of the roll-call vote in 
the House (bearing in mind that the negative was only the hard core 

20 Ibid„ pp. 1221 ff., 1228ff. 

21 In this action, one of the leading advocates of the bill, Richard C. Ander- 
son of Kentucky, head of the Committee on Public Lands, joined forces with 
the anti-reliefers to defeat the proposal by a narrow vote of 85 to 70. Henry 
Clay, of Kentucky, was leader of the extreme relief forces on this occasion. 

—Metcalf was later to become Governor and Senator from Kentucky, and 
to oppose state inconvertible paper plans. 

23 For the text of this law, see U.S. Congress, American State Papers, vol. 3, 

pp. 612—16. 

Direct Relief of Debtors 


of the greater opposition which had made itself felt in the voting 
on amendments): 

Voting on Relief for Public Rand Debtors 



New England 







New Hampshire 









Rhode Island 






Middle Atlantic 

New York 



New Jersey 



















North Carolina 



South Carolina 













Other western States 

(Ohio, Illinois, Indiana, Kentucky, 

Louisiana, Alabama) 




The Panic of 1 81 9 

The relief bill was thus supported by all sections of the country 
except New England — evenly split on the issue. The hard-core 
opposition sentiment was pretty widely scattered geographically, 
with the exception of the West, although proportionally greatest in 
New England. The opposition was fairly strong in the South, but 
not in the important large Middle Atlantic States of New York and 
Pennsylvania. The West, with the exception of Tennessee, was 
overwhelmingly for the measure, with even such skeptical Kentuck- 
ians as Hardin and Robertson joining in voting for final passage. 

Since various proposals for debtors’ relief legislation in the 
states caused indignant opposition in such places as New York City, 
one might be wondering why the New York representatives agreed 
to the measure. Perhaps one reason was that much of the public 
lands were held by eastern speculators. Another reason was that, 
after all, this particular debt was owed to the federal government 
itself, so that relief laws or changes in the contract by the govern- 
ment were directly the government’s concern as one of the parties 
to the contract. There was not here a question of interference in pri- 
vate debt contracts. Hence the disposition, in Congress and out, was 
to let the relief advocates have their way in this case without much 

Even Hezekiah Niles, influential editor of Niks’ Weekly Register, 
who had no use for debtors’ relief legislation, reluctantly approved 
of this bill, although he was critical of the public land speculators 
and apprehensive that the debtors would relinquish the poorest land 
to the government . 24 

And so the public land debtors gained their desired relief meas- 
ure with little opposition. Large numbers of debtors took advantage 
of the relief relinquishment provision; half of the public land debt 
in Alabama — which in turn constituted half of the nation’s total — 

24 Ni/es’ Weekly Register 15 (January 31, 1819): 423; 19 (November 25, 
1820): 194. 

Direct Relief of Debtors 


was paid up within a year. Yet most of those who relinquished the 
land continued to cultivate it and treat it as their own. 25 

The major arguments for land debt relief — the plight of the 
debtors, the distressed conditions, lower prices — could be used on 
behalf of other, more far-reaching, measures for debtors’ relief, pri- 
vate as well as governmental. They were so used, both for direct relief 
measures designed to aid the debtor directly and for monetary pro- 
posals aimed partly or sometimes wholly at debtors’ relief. Against 
these proposals, the opposition was far more vocal and vigorous. 

The immediate and pressing problem for debtors was the legal 
judgments accumulating against them for payment of their debts. 
Consequently, they turned to the state legislatures, which had juris- 
diction over such contracts, to try to modify the provisions for pay- 
ment. The proposed laws either postponed legal executions of 
property or prohibited sales of debtors’ property below a certain 
minimum price. The moratoria were known as “stay laws” or 
“replevin laws,” which postponed execution of property when the 
debtor signed a pledge to make the payment at a certain date in the 
future. Minimum appraisal laws provided that no property could be 
sold for execution below a certain minimum price, the appraised 
value being generally set by a board of the debtors’ neighbors. Such 
laws had been an intermittent feature of American government 
since early colonial Virginia. 26 

The eastern states were heavily embroiled in controversy over 
debtors’ and monetary legislation. Delaware, for example, was hard 
hit by the depression, and its relatively commercial New Castle 
County, in the north, had a particularly heavy incidence of suits for 
debt payments. As the Delaware legislative session opened at the 
beginning of 1819, New Castle County was a hub of agitation for 

25 Abernethy, Formative Period, p. 56. 

26 Madeleine, Monetary and Banking Theories, pp. 27 f£; Greer, “Economic 
and Social Effects,” pp. 228-29. 


The Panic of 1 81 9 

debtors’ relief legislation. Its Representatives Henry Whitely and 
Isaac Hendrickson submitted petitions from over 450 citizens asking 
for some sort of relief to debtors of banks. Finally, the Delaware 
House created a committee headed by Representative Henry Brinckle 
to consider the issues raised by these petitions, as well as banking pro- 
posals which will be considered below. 27 The committee took only a 
week to issue its report. -8 It noted that among the major relief legis- 
lation proposed were some acts that would prohibit execution of 
judgments completely, and some that would compel creditors to take 
such property at a minimum appraised valuation. The Brinckle Com- 
mittee rejected all such proposals on grounds of unconstitutionality 
and because suspension of execution would endanger the position of 
creditors and impair the good faith of contracts. 

As was the case in most states where relief proposals were debated, 
the report provoked a storm. Two members of the five-man commit- 
tee, headed by New Castle’s Representative John T. Cochran, moved 
rejection of the paragraph condemning relief laws. The motion was 
defeated by a vote of sixteen to four. 29 The dispute, therefore, cannot 
be simply described as a geographical split within the state, since the 
majority of each county voted down the amendment. 

The large eastern state of New Jersey gave serious consideration 
to stay laws on executions. A Committee of Inquiry was appointed 
by the New Jersey General Assembly, 1820 session, to consider a 
stay law, which would have postponed executions if the creditor 

27 Although one of the supporting arguments for proposals for increased 
paper currency was the consequent relief of debtors, they will be considered 
separately, because of the many other issues that the monetary proposals pre- 
sented. In many cases, stay laws were tied together with the monetary plans 
and were promulgated as attempts to bolster the general acceptability of the 
new paper, and so to benefit the debtor who could use it in payment. 

28 Delaware General Assembly, journal of the House of Representatives, 1819 
(January 26): 91; (February 2): 139. 

- 9 Ibid. (February 3): 150ff. Three of the dissenters, however, were from 
New Castle County. 

Direct Relief of Debtors 


refused to accept the debtors’ property at or above a minimum 
appraised value. A report strongly in the negative was delivered by 
Representative Joseph Hopkinson, and this served to send the bill 
down to a two-and-a-half-to-one defeat in the House . 30 

The arguments of the Hopkinson Report were a well-considered 
statement, typical of the opposition to debtors’ relief legislation, as 
well as to proposals to increase the money supply. The report began 
with assurances that the committee was deeply sensitive to the pre- 
vailing financial embarrassments, and that they had given due weight 
to the numerous petitions for relief legislation. While the proposed 
legislation, however, would perhaps alleviate the condition of the 
debtors temporarily, it would, in the long run, make their distress 
worse. The contention that relief legislation would eventually inten- 
sify the depression was a central argument for the opposition in all 
the states. The Hopkinson Committee used a familiar medical anal- 
ogy noting that “palliatives which may suspend the pain for a sea- 
son, but do not remove the disease, are not restoratives of health; it 
is worse than useless to lessen the present pressure by means which 
will finally plunge us deeper in distress.” They added that it was their 
duty to be truthful with the people and not delude them with prom- 
ises that could not be kept — even at the expense of their “immedi- 
ate displeasure” — an indication perhaps that the proposal was pop- 
ular in New jersey. The report remarked that suffering men were 
disposed to complain about their lot and look for rapid remedies 
rather than admit that the only cure was slow and gradual. As a 
result they would flee to patent-medicine panaceas, which would 
only make their condition worse. 

Specifically, how would the proposed stay of execution law 
deepen rather than remedy the distress of the people? First, a stay 
law would not extinguish the debt, which would still remain out- 
standing. Second, the real reason for the depression was the lack of 

- ,0 The vote was 26 to 10. For the vote, see New Jersey Legislature, Votes 
and Proceedings of the General Assembly, 1 819— 20 (June 13, 1820). For the report 
of the Flopkinson Committee, see ibid. (June 2, 1820): 202—05. Hopkinson 
had been a distinguished Federalist lawyer and Congressman from Philadel- 
phia, and was soon to return there. 


The Panic of 1 81 9 

“mutual confidence.” Only such confidence could lead to a revival 
of credit and activity. But it was clear, declared the Hopkinson 
Committee, that the distress would greatly increase if a potential 
creditor were prohibited by law from recovering his loan from a 
delinquent debtor. A stay law would eliminate rather than restore 
credit, confidence, and business activity. 

Unsuccessful attempts to pass a minimum appraisal law and a 
stay law also took place in conservative New York State. Ultra- 
conservative Massachusetts considered but did not pass a stay law. 
The proposed New York minimum appraisal law, in 1819, provided 
that in all cases of judgments on houses and lands, the court officer 
shall appoint three disinterested men — one a representative of the 
creditor, one of the debtor and one picked by the court officer — to 
appraise the real estate at its “just and true value, in money.” The 
creditor, in order to obtain payment, would be obliged to accept the 
property at such value. This bill was defeated by a three-to-one mar- 
gin. M A proposal for a stay law was also offered and rejected by a 
two-to-one margin. A bill was later passed, however, relaxing the 
processes against insolvent debtors. 3- 

Maryland, on the other hand, passed a stay law by a near two-to- 
one majority. It also passed a law in 1819—20 exempting household 
articles worth up to $50 from sales at execution — a considerable aid 
to harassed debtors. 3 ' 1 There was much agitation for a special session 
of the Maryland legislature to enact a stay law. Citizens of rural Som- 
erset County in southeastern Maryland, for example, called for a spe- 
cial session, citing the high proportion of enterprising citizens in seri- 
ous debt. 14 The agitation drew the criticism of the alert, conservative 

31 New York Legislature, Senate Journal, 1 819 (April 5): 251-52. 

32 Ibid., 1821 (March 13): 223. 

33 Matthew P. Andrews, Tercentenary History of Maryland (Chicago: S.J. 
Clarke Co., 1925), p. 1741; Boston New England Palladium, February 1, 1820. 
Maryland also abolished imprisonment for debt in 1819. The movement for 
abolition, however, is only tangential to our study, since it was a continuing 
humanitarian movement rather than an economic measure. 

34 Cleveland Register, ] uly 6, 1819. 

Direct Relief of Debtors 


New York Daily Advertiser, Federalist organ for merchants. 3 ' 1 It 
pointed out that the distress of farmers and those trading with them, 
stemmed from the low prices of agricultural produce, and no legisla- 
tive tempering with debt contracts could raise these prices in foreign 
markets. Furthermore, “the shock which business of every descrip- 
tion . . . receives from [these] measures ... is more than a counter- 
balance to any monetary relief.” It went on to criticize the debtors for 
speculations and extravagance. 

That the West had no monopoly on debtors’ relief agitation is 
attested by the furious fight over stay laws in the Vermont legisla- 
ture. In the fall of 1818, the Vermont House defeated numerous 
attempts to postpone consideration of the bill, and finally passed it 
by a three-vote margin. 36 The Senate failed to pass the bill in that 
session, and this precipitated another batde in the 1820 session. 
Repeated motions to postpone were rejected by two-to-one majori- 
ties, and the bill was passed by a similar margin, after limiting 
amendments to force the debtor to swear to inability to pay and to 
limit the bill to debtors with families had overwhelmingly failed. 37 
The Senate still persisted in its failure to pass the bill, however, and 
so the House finally surrendered in the next session, by a three-to- 
one majority. 38 The legislature finally passed a law staying all execu- 
tions for debt in the spring of 1 822, after the crisis had ended. But 
that summer, the new law met the fate of many similar state laws, 
and was declared unconstitutional by the Circuit Court. 39 

35 New York Daily Advertiser, June 17, 1819; January 11, 1820. 

36 By a vote of 62 to 59, after repeated refusal to postpone the bill by fluc- 
tuating margins, as high as 97 to 56. Vermont General Assembly, Douse Jour- 
nal, 1818-19 (October 10, 1818; November 6, 1818; November 10, 1818): 
143f£, 167. 

37 The bill passed by a vote of 87 to 47. Ibid., 1819-20 (November 10, 
1819): 172ff. 

38 The vote was 115 to 38. Ibid., 1820—21 (October 27, 1820): 101. 

~ ,9 Walter Hill Crockett, Vermont, the Green Mountain State (New York: The 
Century History Co., 1921), vol. 3, p. 181. 


The Panic of 1 81 9 

In Rhode Island a unique situation faced the debtors. Since the 
establishment of Rhode Island’s first chartered bank in 1791, a 
unique “bank process” privilege had been granted to banks of the 
state. When obligations to a bank fell due, the bank officers had only 
to give legal notice to the debtor. The courts were then forced to 
enter judgment against the defendant immediately and issue execu- 
tions without the customary legal trial — although the debtor was 
permitted a trial if he denied the legality of the debt. All other 
debtors, including banks themselves, were entitled to the usual judi- 
cial proceedings. One of Rhode Island’s first acts on the onset of the 
panic late in 1818 was to repeal the summary bank process laws. 40 

One of the most interesting of the controversies over the 
debtor’s relief legislation occurred in Virginia — a stronghold of 
economic conservatism. Virginia’s leading statesmen were notewor- 
thy for their opposition to fiduciary banking, expansion of paper 
money, and government interference with the economy. 41 Yet, the 
Virginia General Assembly engaged in a spirited debate over a pro- 
posed minimum appraisal law. This law would prevent any sale of 
property under execution unless the property sold for at least three- 
fourths of its “value,” as appraised by a governmentally appointed 
commission. 42 The chief advocate of the bill was Representative 
Thomas Miller, from rural Powhatan County. Miller concentrated 
on the plight of the large number of debtors. 43 In Virginia, he 
explained, most business was transacted on credit. The farmers, in 
borrowing to work on their crops, had done so when tobacco sold 
at $12 a pound, and wheat at $2 a bushel. Naturally they had antic- 
ipated that this prosperity would continue. Then, when they had to 
repay their debts, they were confronted with tobacco at $5 and 

40 Howard K. Stokes, “Public and Private Finance,” in Edward Field, ed., 
State of Rhode Island and Providence Plantations at the End of the Century: A History 
(Boston: The Mason Publishing Co., 1902), vol. 3, pp. 264-71, 291ff.; and 
Clarence S. Brigham, “The Period from 1820 to 1830,” in ibid., vol. 3, p. 304. 

41 Throughout this paper, “conservative” will be used as a term connoting 
such views. 

42 Richmond Enquirer, February 1, 1820. 

43 Ibid. The debate took place in the House of Delegates on January 28. 

Direct Relief of Debtors 


wheat at $1. The value of the resources that they could use to pay 
debts had been reduced by more than half, yet the price of imported 
articles, such as woolens, sugar, and coffee had remained 
unchanged. This situation was general throughout the state. 

Miller emphasized that the debtors could not be blamed for their 
plight. The change was a sudden one and was not due simply to 
their “extravagance.” The expansion of banks and bank credit had 
raised the prices of property and produce, and induced the people 
to go into debt. Then, swiftly, the banks stopped expanding and 
contracted their loans and notes; the result was contraction of 
money and prices, and a great burden of debt. The responsibility for 
the debtors’ plight was therefore that of the banks, and not of the 
debtors themselves. Miller laid blame on the state banks and the 
Bank of the United States; the latter for serving as an expansionist 
force from its inception, then initiating the contraction, thereby 
causing a multiple contraction by the state banks. Since extrava- 
gance was not the cause of the crisis, mere calls for “industry and 
economy” would not effect a rapid cure; and the legislature, which 
had assured the people that its chartered banks were good for the 
community, owed it to them to throw them a plank in the present 
sea of distress. 

Miller’s argument is particularly interesting in harmonizing the 
general anti-bank sentiment in Virginia with an argument for 
debtors’ relief. The advocates of debtors’ relief laws generally 
favored monetary expansion plans as remedies for the crisis. In many 
states the two were tied together, so that creditors were penalized 
with stay laws if they should refuse the new paper money, which 
would be loaned to debtors, to enable them to repay their debts. Yet, 
in this case, in a state of generally anti-paper money opinion, the 
leading advocates of debtors’ relief linked together anti-hunk ideas 
with pleas for a minimum appraisal law. 

The same argument was advanced by another leading sup- 
porter, Representative William Cabell Rives of Nelson County. 44 
He denounced the banks and called the relief law essential to the 

44 Ibid., February 5, 1820. 


The Panic of 1 81 9 

salvation of the people. In lurid terms he denounced the shylock 
creditors, who were bent on extracting their pound of flesh from 
the hearts of the people . 43 

The most comprehensive attack on the relief proposal came 
from Representative William Selden, of Henrico County, a middle- 
sized farming county adjacent to Powhatan and similar in the com- 
position of its population . 40 He recognized that the value of money 
had changed, but asserted that it was not subject to regulation by the 
government. The value of money depended on the quantity of cir- 
culating medium and the quantity of goods; “money itself is an arti- 
cle of traffic” like any other. “Human legislation on this subject is 
worse than vain.” 

Selden proceeded to attack the idea of special privilege legisla- 
tion for any class of citizens, such as farmers or debtors. The fact 
that debtors might be in the majority does not make such legislation 
just. Such class legislation would confiscate the property of the 
creditor and ruin the merchants who gave credit to their customers. 
Selden stressed the importance of personal responsibility for con- 
tracts and actions; the debtor should “pay the consequence of his 
own folly of imprudence.” In short, freedom of contract must be 
maintained; “Leave men alone to make their own contracts, and 
leave contracts alone when they are made .” 47 

Representative Robert T. Thompson, of wealthy Fairfax County, 
added another argument against the law. Objecting to the appraise- 
ment provision, he declared that property had only one value: the 
“price which it could command” at a fair public sale, and that its 
value could not be determined by any commission. Furthermore, 

45 Rives was later to become one of the most prominent Virginia states- 
men, a Jacksonian who favored state banking and balked at the sub-treasury 
scheme. Also supporting the bill was Representative Joseph Lovell of 
Kanawha, in West Virginia, who pointed to the “unusual embarrassment” of 
the times. Ibid., February 3, 1820. 

46 Ibid., February 1, 1820. 

47 The danger of setting a precedent in impairment of contract was 
stressed by Representative Andrew Stevenson, of the city of Richmond. Ibid. 

Direct Relief of Debtors 


Thompson wondered why there was no pressure for acceleration of 
debt payment during boom periods. He concluded by urging that 
the legislature let the “cure ... go on,” this cure being the elimina- 
tion of the common habits of extravagance and luxury. 

The outcome of the debate was rejection of the minimum 
appraisal bill by a vote of 113 to 74. 4S The relief forces, however, 
tried again with two proposed stay laws in the 1820—21 session. 
These were rejected by a narrow margin. 49 

The conservative attitude toward the financial difficulties was 
reflected in the message to the Virginia legislature of Governor 
James P. Preston. 3 " The embarrassments were caused by general 
imprudence, extravagance, love of ease, and an inordinate desire to 
grow rich quickly. Preston declared that the remedy for the crisis 
was a return to the old habits of industry and economy. 31 

North Carolina, plagued by a rapid fall in prices and land values, 
and beset by bankruptcies and failures, also saw a controversy over 
a stay law. Governor John Branch, in Iris message to the legislature 
in the 1820 session, proposed a stay and a minimum appraisal law 
to appraise the debtor’s property at its “intrinsic value.” There was 
too much opposition, however, for the bill to pass. Branch did suc- 
ceed in passing a stay law for debtors who had purchased former 
Cherokee Indian land from the state. 32 

The pivotal state of Pennsylvania, which gave a great deal of 
thought to proposals for remedying the depression, considered stay 
laws and minimum appraisal laws. A minimum appraisal law was first 

48 Ibid., February 5, 1820. 

49 One was rejected by a vote of 76 to 47, and the other by 95 to 84. The 
latter bill had previously been tentatively approved by a vote of 109 to 71. Vir- 
ginia General Assembly, Journal of the House of Delegates, 1820—21 January 19, 
January 25, February 17): 126, 140, 131. 

50 Ibid., 1819-20 JTecember 6, 1819): 6-9. 

51 See below for arguments on industry and economy as the remedies for 
hard times. 

52 North Carolina, Flistorical Records Survey Project, A Calendar of the Bartlett 
Yancej Papers Jlaleigh: North Carolina Historical Society, 1940), p. 4. 


The Panic of 1 81 9 

suggested by two Representatives from widely separated rural areas, 
John Noble and James Reeder . 53 They urged a law forcing creditors 
to accept the real estate of debtors at a value set by an official. If they 
refused, execution of the judgment against the debtor was to be 
stayed for three years. Their major argument was that, while debtors 
generally had enough paper currency to have discharged the debt, the 
widespread depreciation of paper had placed a danger of forced 
sales on a great portion of Pennsylvania farmers and rural citizens. 

The legislature never considered this bill seriously, despite the 
fact that Governor William Findlay urged its passage . 34 Attempts to 
pass such legislation were killed by the reports of several special 
committees on the economic distress in the next sessions of the leg- 
islature. One report was submitted by the fiery Representative 
William Duane, editor of the daily Philadelphia Aurora — the old 
stronghold of arch-Republicanism . 53 Duane, as chairman of the 
Special Committee on the General State of the Domestic Economy, 
declared that widespread distress prevailed among creditors, farm- 
ers, and mechanics throughout the state. In county after county, cit- 
izens testified to daily sacrifices of property and defaults on debts. 
Granting that a minimum appraisal law would afford some relief to 
specific debtors, such a law would be economically unsound, as well 
as an unjust special privilege for the debtor. Duane, like Hopkinson 
in New Jersey, declared that one of the greatest obstacles to a return 
of prosperity was the “absence of credit or confidence,” and noth- 
ing could better delay a revival of confidence than such a measure . 56 

^Representative Noble was from Bedford County in far Western Penn- 
sylvania, and Representative Reeder represented Luzerne and Susquehanna 
Counties in the North. For their proposal, see Pennsylvania Legislature, Jour- 
nal of the House, 1 81 8— 19 (December 10, 1818): 113. 

54 Findlay was later U.S. senator and treasurer of the U.S. Mint under Jackson. 

55 For the text of the report, see Pennsylvania Legislature, Journal of the 
House, 1819-20 (January 28, 1820): 476-88. 

56 Duane’s own remedies will be considered below. 

Direct Relief of Debtors 


The famous Raguet Report, in the 1821 session, also rejected such 
debtors’ legislation, but, without engaging in analysis of the pro- 
posal, stated simply that it was impracticable and dishonorable. 57 

Despite this recommendation, Pennsylvania passed a minimum 
appraisal law in March, 1821, providing that bankrupt property 
must be sold for two-thirds of its assessed valuation, else the debt 
would be stayed for one year. 58 Further, the legislature, without con- 
troversy, modified the provisions of the execution laws in order to 
alleviate some of the burdens of the insolvent debtors. Specifically, 
a defendant could prevent sale of his landed property, if the prop- 
erty was considered to be unprofitable. 59 

One of the most acute and original critiques of stay and mini- 
mum appraisal legislation was the product of “A Pennsylvanian” 
writing in the conservative — formerly Federalist — Philadelphia 
Union. 60 “A Pennsylvanian” noted that these laws were being advo- 
cated in many petitions to the legislature. Aside from their impair- 
ment of contract, such laws would, rather than relieve the distress, 
have a “most pernicious effect.” For the distress was caused by two 
factors, a lack of money and a lack of confidence. Such laws would 
not increase the amount of money in circulation, and therefore 
would not relieve the first cause. On the other hand, they would 
destroy the little confidence that now remained; they would induce 
the withdrawal of large amounts of capital now employed and mit- 
igating the distress. The withdrawn capital would 

be either invested in the public funds or perhaps [be 

driven] to other states, where a higher rate of interest 

57 State Senator Condy Raguet, of Philadelphia, headed a committee to 
investigate the extent, causes, and remedies of the distress. Its report will be 
considered further. Its text is in Pennsylvania Legislature, Journal of the Senate, 
1819-20 (January 29, 1820): 221-36, and the documentary appendix to the 
report is to be found in ibid. (February 14, 1820): 311-37. 

58 Kehl, Ill-Feeling, pp. 12—13. 

^Pennsylvania Legislature, Lam of Pennsylvania, 1819—20 (March 28, 
1820): 155. 

60 “A Pennsylvanian” in Philadelphia Union, February 11, 1820. 


The Panic of 1 81 9 

already holds out a sufficient temptation, and the people 
are too wise to destroy public confidence by laws imped- 
ing die recovery of debt. 

“A Pennsylvanian” pointed to United States and City of Philadelphia 
6 percent bonds being currently at 3 percent above par — indicating a 
great deal of idle capital waiting for return of public confidence before 
being applied to the relief of commerce and manufacturing. Thus, in 
the process of criticizing debtors’ relief legislation, the “Pennsylvan- 
ian” was led beyond a general reference to the importance of “confi- 
dence” to an unusually extensive analysis of the problems of invest- 
ment, idle capital, and the rate of interest. 

In the heavily indebted agricultural states of the West, there was 
greater agitation for debtors’ relief legislation. These states passed 
more such legislation than the eastern states, but generally only after 
an intense and continuing controversy. Although the relief senti- 
ment was greater in the West, there were strong groups of advo- 
cates and opponents in each state. 

Although Ohio was hit very heavily by the crisis, debtors’ relief 
proposals did not make too much of an impact or generate great 
controversy. Ohio had had a minimum appraisement law since its 
inception as a state in 1803. The law set a minimum price at forced 
sale at two-thirds an official appraisal of the debtor’s property — the 
appraisement to be performed by a board of the debtor’s neighbors. 
If the auction sale brought less, the property would be retained by 
the insolvent debtor. 61 The laws were effective in shielding the 
debtor, although there were complaints that often the officials’ 
appraisals were at a very low value, hardly higher than the market 
value itself. 62 In other cases, where appraisals were set at a high 
value, there were complaints in the press that creditors were being 
victimized. The Cleveland Herald cited one case of a creditor 

61 Greer, “Economic and Social Effects,” p. 238. 

62 Charles C. Huntington, A History of Ranking and Currency in Ohio Before 
the Civil War (Columbus: Ohio Archaeological and Historical Society, 1915), 
pp. 300ff.; comment of Philadelphia Union, August 27, 1821; Cleveland Her- 
ald, October 16, 1821. 

Direct Relief of Debtors 


obliged by the law to accept miscellaneous articles of personal prop- 
erty (such as watches, dogs, barrels) at an inflated value or be forced 
to wait at least six months to collect. The Herald called for repeal of 
the appraisement law. 63 In sum, the plight of the debtors in Ohio was 
urgent, but their attention was concentrated on measures other than 
direct intervention in debt contracts. 64 

Thinly populated and overwhelmingly rural, Indiana was also 
heavily in debt and hard-hit by the economic crisis. As soon as the 
crisis struck, Indiana moved swiftly to pass debtors’ relief legisla- 
tion. The main argument was that such laws benefited debtor and 
creditor alike, since the creditors could only be harmed by the ruin 
of their debtors, a ruin inevitable should the rapid debt-collection 
system remain in effect. 65 In 1819, the Indiana legislature passed 
two relief laws; one increased the amount of personal property 
exempted from execution sales; the other stayed executions for one 
year unless the creditor agreed to accept at par the new paper 
money of the State Bank of Indiana, or to accept at par money of 
the other chartered banks in the state. 66 The measures passed in the 
Senate with only one dissenter. 67 On January 18, 1820, Indiana 
passed a minimum appraisal law providing for sales at a value of 
two-thirds of appraisal value and a one-year stay for creditors refus- 
ing these terms. The opposition to the Indiana relief laws centered 

63 Cleveland Herald, March 20, 1821. This attitude contrasts with the tone 
of the press before the laws were passed when it was angry at the rapacity of 
the creditors. Thus, see Cleveland Register, May 25, 1819, August 10, 1819. 

M On the pervasive insolvency in Ohio in this period, see William Greene, 
“Thoughts”; John J. Rowe, “Money and Banks in Cincinnati Before the Civil 
War,” bulletin of the Historical and Philosophical Society of Ohio 6 (July 1948): 
74-84; Goss, Cincinnati, pp. 139-41; Davis, “Economic Basis,” pp. 289-90. 

65 Jacob Piatt Dunn, Indiana and Indianans (Chicago: American Historical 
Society, 1919), p. 326. 

66 Indiana General Assembly, Lairs, 3rd General Assembly, p. 68; on 
debtors’ relief laws in Indiana, see Waldo E Mitchell, “Indiana’s Growth,” 
pp. 389-91. 

67 Indiana General Assembly, Journal of the Senate, 1818—19, p. 36. 


The Panic of 1 81 9 

on the banking proposals and the State Bank paper, rather than on 
the stay provision itself. 

In the next session, the Indiana legislature passed a stronger 
minimum appraisal law, patterned after the Ohio measure. It pro- 
vided that, in the case of insolvency, the sheriff request seventy-five 
freeholders to estimate the value of the debtor’s property, and then 
the property could not be sold for less than two-thirds of this 
appraised value. If the property did not sell for at least this amount, 
the debtor was granted a year’s stay. With almost all the freeholders 
being debtors, the appraisals were generally set at a very high rate, 
discouraging almost all forced sales. 68 In 1824, amid revived busi- 
ness activity, the anti-reliefers succeeded in repealing the appraise- 
ment law. 

In Illinois, the major concentration in the state legislature was on 
the establishment of a new state-owned bank for issuing large 
amounts of paper money. The debtor’s relief legislation was origi- 
nally linked with the new bank. It provided that if creditors refused 
to accept the new state bank paper as payment for their debts, all exe- 
cutions would be stayed for nine months. Furthermore, the debtor 
would have the right to reclaim the property (to replevy) if he made 
full payment within three years. Thus, Illinois enacted the equivalent 
of a three-year stay of execution if the creditor refused to accept the 
new paper at par for payment of the debt. 69 Even if the creditors 
accepted the notes, however, the debtors could claim rights of 
replevy for sixty days and judgments were stayed for one month. 
Debt contracts explicitly made in gold and silver, and which there- 
fore had to be repaid in kind, were stayed for a period of one to five 
months. As further relief for all debtors immediate judgment could 

68 Indiana General Assembly, Lairs, 4th General Assembly, pp. 113f£; 
Mitchell, “Indiana’s Growth.” 

69 Garnett, State Banks, pp. 8-13. This law succeeded previous laws, 
enacted in 1813 and 1817, which had provided stays of one year for refusal of 
creditors to accept at par the notes of various Illinois banks. George W 
Dowrie, The Development of Banking in Illinois, 1817—63 (Urbana: University of 
Illinois Press, 1913), p. 11; Knox, A History of Banking, p. 712. 

Direct Relief of Debtors 


only be rendered against one-third of a debt, while all real estate, 
except that previously mortgaged, was exempted from judgments. 70 

Interestingly enough, the most bitter opponent of the incon- 
vertible bank paper plan — Representative Wickliff Kitchell, of rural 
Crawford County in eastern Illinois — introduced a substitute debt- 
relief program of his own, albeit more modest than the three-year 
replevy law. Kitchell proposed a flat one-year stay on all executions 
for pending judgments on past debts. The execution would apply if 
the creditor swore that the property was in danger of being lost, in 
which case the debtor would have the right to replevy the property 
for one year, and for two years for debts over $500. There would be 
no stay or replevy for debts contracted in the future. The substitute 
bill was rejected in the Illinois House by a vote of 16 to 10. How- 
ever, the legislature passed an additional mandatory nine-month stay 
law on all pending executions. 71 

Extreme western Missouri, just in the process of becoming a 
state, was the scene of one of the most comprehensive programs of 
relief legislation, and also of one of the most vigorous controver- 
sies over relief. Missouri had had particularly widespread specula- 
tion in land, and incurred heavy indebtedness in the course of this 
speculation. 7- Most of this speculation during the prosperous post- 
war years, in town lots as well as in farms, was predicated on a con- 
tinued heavy wave of migration to the West by men with money to 
spend. The wave came to a halt during the depression, adding to the 
crisis and fall in prices, and spreading insolvency among the debtors 
and landholders in the state. 73 One striking result during the era 
(and this was also true in Illinois) was the large number of ghost 

70 Dowrie, Development, p. 32; and Alexander Davidson and Bernard B. 
Stuve, A Conrplete Hisfoty of Illinois (Springfield, 111.: Rokker Co., 1881), p. 307. 

71 Illinois General Assembly, House journal, 1820—21 (January 13, 1821): 

72 See the excellent articles by Dorsey and Anderson. 

72 The existence of this special immigration boom helped to delay the cri- 
sis in Missouri to the end of 1819. Anderson, “Frontier Economic Problems,” 
Part I. 


The Panic of 1 81 9 

towns — built during the boom — now mute evidence of the highly 
erroneous expectations of a few years before. As was the case 
throughout the West, a good part of the indebtedness was commit- 
ted in public lands and was owed to the federal government. We 
have already seen the action that the government took to relieve this 
problem. This relief did not solve the problem of the private land- 
debtors or of the merchants deeply in debt, who had anticipated 
heavy demand from relatively well-to-do immigrants. The press 
reported widespread imprisonments for debt and noted that few 
could afford to attend the sheriff’s sales to purchase the debtors’ 
property. There were many cases of forced sale of land for tax 
delinquency. Close to the barter of the frontier, it is not surprising 
that many business firms announced their willingness to take pro- 
duce in payment of debts. 

In the spring of 1821, public pressure erupted for relief legisla- 
tion by the state, and the pro-relief forces agitated for a special ses- 
sion of the legislature. 74 Many newspaper articles, in April and May 
of 1821, cited the mass of unpayable debts and urged governmen- 
tal relief. The author of one such article signed himself “Nine- 
Tenths of the People.” 73 There had been rumors of a special ses- 
sion since early March, and the supporting articles were responses 
to these rumors. 

Opposition to such legislation, however, was also vocal. As early 
as August 16, 1820, thirteen members of the grand jury of St. 
Louis — the urban center of Missouri — denounced any stay or min- 
imum appraisal law. They declared that stay laws for land debts 
alone (which were being proposed) would be special privilege for 

74 On the controversy over debtors’ relief legislation in Missouri, see the 
articles by Dorsey, Anderson, and Hamilton. 

75 Primm states that the St. Charles Missourian, May 3, 1821, itself declared 
that “nine-tenths of the people were demanding economic relief.” James Neal 
Primm, Economic Polity in the Development of a Western State, Missouri, 1820-60 
(Cambridge, Mass.: Harvard University Press, 1954), p. 3. But see Anderson, 
“Frontier Economic Problems,” Part I, p. 58n. 

Direct Relief of Debtors 


landholders. 76 Opposition was expressed on constitutional grounds 
also. A citizens’ meeting in May at Boonville, Cooper County, in 
central Missouri, denounced any debt interference legislation as 
immoral and unconstitutional. The sacredness of contracts was 
emphasized in an article in the Missouri Gazette, in March; the 
author declaring that only regular bankruptcy laws were just, and 
that the only leniency should be by voluntary act of the creditors 

Other writers stressed the pernicious economic effect of stay 
and other debtors’ relief laws. They declared that creditors would 
cease to lend their money, and that such laws would interrupt busi- 
ness calculation and discourage regular trade. The laws would only 
aggravate the crisis further. 77 

Despite this strong opposition, on April 24 the Governor called 
a special session to be convened on June 1, ostensibly only to con- 
sider imminent statehood. The conservative forces sensed that the 
major aim was relief, however, and became very vocal in opposing 
the expected storm. The Jackson Independent Patriot, from rural 
southeastern Missouri, and the St. Charles Missourian took the lead 
in expressing fears of a replevin law. This opposition was echoed by 
most of the other leading newspapers, such as the Missouri Intelli- 
gencer and the St. Louis Enquirer 8 

The fears of the conservatives proved justified. In his message 
of June 4, Governor Alexander McNair cited the “Pecuniary embar- 
rassments . . . heretofore unknown to us,” and five days later a 

76 Only two members of the grand jury refused to sign this presentment, 
and they reasoned that discussing such legislation was none of the grand jury’s 
business. See Anderson, “Frontier Economic Problems,” vol. 1. 

77 “A Citizen” in St. Louis Enquirer, March 3, 1821; Franklin Missouri Intel- 
ligencer, May 28, 1821. 

78 Primm gives the impression that overwhelming sentiment in this period 
favored relief legislation. While mentioning letters favoring relief legislation 
and a rural citizens’ meeting, however, Primm omits the opposition of the 
bulk of the press and of the rural citizens’ meeting at Boonville. Primm, Eco- 
nomic Policy, pp. 2-5. 


The Panic of 1 81 9 

debtors’ relief bill was introduced in the House. 79 The bill, which 
became law in this session, provided for a two-and-one-half-year 
moratorium for executions on land debts only. Under the law, the 
debtor could at any time replevy all land sold at sheriff’s auction by 
a mere payment of his debt plus 1 0 percent interest. The theory of 
the legislation was that most Missourians in the state were land- 
holders, and that therefore this form of relief was particularly 
needed. It was hoped that in two and one half years revived pros- 
perity would permit the farmer-debtors to keep their land. The spe- 
cial session also established a state loan office to issue paper money, 
reduced the penalties of imprisonment for debt, and exempted var- 
ious personal necessaries from forced sales at auction. 

The major act of the special session was the establishment of 
the loan office. When the fall session convened in November, the 
relief forces were anxious to enlarge the system through a strong 
stay and minimum appraisal law. This law was desired for its own 
sake, as well as to assist circulation of the new notes, and to super- 
sede the previous law that applied only to land. The proposed law 
became the most vehemently debated issue of the fall session. Gov- 
ernor McNair’s opening message was extremely cautious. He hoped 
for “some effective plan of relief” which would “blend with our 
humanity for the unfortunate debtor a due respect for the principles 
of the Constitution and the rights of creditors.” 80 On this hotly 
controversial issue, the Governor was leaving the initiative strictly to 
the legislature. The battle was extremely close in the House, which 
at one time rejected the bill by a tie vote of 21 to 21, but the bill 
finally passed, after high pressure by the relief forces, on a vote of 
23 to 18. The bill barely passed the Senate by a vote of 7 to 5 and 
became law. 81 The voting on the stay-minimum appraisal law, as well 

79 McNair was an influential merchant of St. Louis. Missouri General 
Assembly, Haws, 1st General Assembly, Special Session, 1821, pp. 32-34. 

80 Missouri General Assembly, Journal of the House of Representatives, 1st Gen- 
eral Assembly, 2d Session, 1821, pp. 7-10. 

81 Missouri General Assembly, Hams, 1st General Assembly, 2d Session, 
1821, pp. 46-52. 

Direct Relief of Debtors 


as on the loan office bill, cut sharply across sectional lines. The con- 
stituencies, such as St. Louis, Jackson, and Boonville, were closely 
divided within themselves. 82 

Considered by the relief forces — headed by Representative Duff 
Green — as the climax of the relief program, this law featured a 
minimum appraisal provision. 83 In each township, the county court 
was to appoint three people to appraise the worth of the debtor’s 
property. The creditor was forced to accept the property at least at 
two-thirds of the official value. On the other hand, if, at the public 
sale, the property sold for more than two-thirds the official appraisal, 
the creditor was still entitled to only two-thirds of the sale price, 
while the debtor could keep the remainder. If the creditor refused 
to accept the property under this provision, the debtor was granted 
a stay of two and one half years in payment. 

This was a very strong minimum appraisal law, yet the relief 
forces were not satisfied. They were disappointed that the law did 
not force the creditor to accept the new loan office certificates as an 
alternative to the two-and-one-half-year stay. Without such a clause 
the law was too narrow of application. Consequently, the relief 
forces were able to pass a supplementary stay law, which gave the 
creditor the choice of accepting two-thirds of the appraised value 
of the property in loan-office certificates at par or suffer a two-and-one- 
half-year stay. 84 Again, the division in the legislature was very close, 
17 to 15 in the House and 6 to 4 in the Senate, and again the voting 
cut across sectional lines in every county. 85 

82 Anderson, “Frontier Economic Problems,” vol. 1, p. 65. 

83 Green was a wealthy merchant, leading lawyer, and land speculator. He 
was brother-in-law of Ninian Edwards, of Illinois. Green’s son later married 
John C. Calhoun’s daughter, and Green became Calhoun’s chief editorial arm, 
as editor of the Washington United States Telegraph. Green later became Presi- 
dent Tyler’s unofficial representative to Europe. 

84 Missouri General Assembly, Tail’s, 1st General Assembly, 2d Session, 
1821, p. 74. 

88 Hamilton, Relief Movement. 


The Panic of 1 81 9 

During the course of relief agitation in the summer and fall of 
1821, the bulk of the Missouri press swung over to support the 
relief program. The opposition branded the relief laws as the work 
of selfish groups of “spendthrifts” and “big speculators” working 
their influence on the state legislature. The theme of the opposition, 
as in the case of public land debtors described previously, was that 
the law was being pushed by bankrupt speculators and spendthrifts, 
and not by the “honest” debtors, although no criterion was laid 
down to distinguish between these groups of debtors. 86 The specu- 
lators were also accused of buying the support of the press. 87 
Another common opposition theme held that pressure for relief 
came from the wealthy debtors rather than from the mass of poor. 
Thus, the Missouri Republican declared that the relief legislation was 
intended to preserve the “wealthy debtor in his palace,” and that, in 
general, it benefited the dishonest man and burdened the just. 88 

As was the case with most debtors’ relief and monetary expan- 
sion laws passed in this period, the stay laws ran into trouble with 
the courts and were declared unconstitutional by the State Circuit 
Courts in July, 1822. The furious relief advocates called for a purge 
of the judiciary, and the batde over the relief issue continued to 
rage. 89 In the fall of 1821, before the climactic stay law legislation, 
the elections, drawn on the relief question, had yielded victory for 

86 “Friend of justice” in Franklin Missouri Intelligencer, September 4, 1821; 
WJ. Hamilton, “The Relief Movement in Missouri, 1820—22,” Missouri Histor- 
ical Review 22 (October 1927), 78. 

87 Anderson, “Frontier Economic Problems,” p. 67. 

88 St. Louis Missouri Republican, October 9, 1822. The charge that wealthy 
debtors rather than poor ones were responsible for the relief drive was com- 
mon to the opposition in many states. Anderson, “Frontier Economic Prob- 
lems,” believes that this charge was correct, at least in Missouri. She states that 
the relief measures were largely for the benefit of the large land speculators, 
and that Representative Duff Green, the well-to-do relief leader, was himself 
heavily in debt at the time. Primm, Economic Policy, pp. 8-9, errs in asserting 
that the opposition to relief legislation based itself purely on a defense of 
wealth and on attacking the reliefers as poor and enemies of property. 

89 Hamilton, Relief Movement. 

Direct Relief of Debtors 


the relief forces. Thus, in October, 1821, Pierre Chouteau, mer- 
chant and son of an eminent family in the state, ran as a debtors’ 
relief candidate. He defeated Robert Walsh, running in opposition 
in a special election for State Senator from St. Louis. A similar vic- 
tory for the relief forces was gained in Howard County, a rural dis- 
trict in central Missouri, adjacent to Boonville. Now, after the court 
decision and a turning of the tide in public opinion, the general 
election to the legislature on August 7, 1 822 hinged directly on relief 
as the critical issue. The relief forces advocated constitutional 
amendments to smash judicial opposition to the relief laws, while 
the opposition advocated repeal of the entire relief structure. The 
elections were a victory for the anti-relief forces. The pivotal city of 
St. Louis returned three reliefers and three anti-reliefers in the 
House, and John S. Ball, an anti-reliefer, to the State Senate; and in 
another special Senatorial election in St. Louis, in October, 1822, an 
anti-reliefer triumphed. 90 

Sensing the political currents, Governor McNair, who had 
started it all the previous year, strongly recommended, in his open- 
ing message of November 4, the elimination of the chaos by repeal- 
ing all of the relief laws. 91 He declared that they had not proved suc- 
cessful in alleviating the financial distress, and that, furthermore, the 
crisis was ending from natural causes. In final analysis, the only true 
remedies were the gradual ceasing of speculation, a change from 
luxury to economy, avoidance of debts or extravagance, and a 
growth in industry and enterprise. The legislature lost no time in 
complying with McNair’s wishes. On November 27, a bill to repeal 
the stay-minimum appraisal laws was introduced and passed by a 
large majority. 

90 On the 1821 election, see Primm, PLconomic Policy, pp. lOff. Primm, by 
failing to mention the hotly fought 1822 election, vastly underestimates the 
extent of popular opposition to the relief program. He also neglects to men- 
tion that Governor McNair, in urging repeal of the relief legislation, specifi- 
cally mentioned its failure to have the desired effects. Ibid., p. 15. 

91 Missouri General Assembly, journal of the House of Representatives, 2d Gen- 
eral Assembly, 1st Session, 1821, pp. 7-8. 


The Panic of 1 81 9 

In early 1821, Louisiana passed — with litde or no controversy — 
a stay law suspending execution sales for two and one half years and 
imposing a minimum of personal property that could be retained by 
the debtor. 92 

Relatively developed, compared to the other western states, were 
Tennessee and Kentucky. These were the best-known centers of 
debtors’ relief agitation and legislation. Tennessee had experienced 
a pronounced boom since the war with the opening of new lands, 
increased production of cotton at booming prices, and a great 
expansion of the credit system. 93 The monetary contraction and the 
fall in the cotton price wreaked extensive damage on the numerous 
debtors, particularly in the cotton-growing regions. Insolvencies and 
forced sales abounded. 94 

As in many other states, debtors turned to the state legislature 
for aid. 93 The center of relief agitation was the predominantly cot- 
ton-growing middle Tennessee, particularly Nashville, the most 
populous city in the state. The acknowledged leader of the relief 
agitation was the wealthy, influential merchant and politician, Felix 
Grundy of Nashville. Grundy, formerly Chief justice of the Ken- 
tucky Court of Appeals and a leading Representative in the Ten- 
nessee legislature, became a candidate again for his old post as State 
Representative in the summer of 1819, basing his campaign on a 

92 Richmond Enquirer, July 31, 1821; Folz, “Financial Crisis,” pp. 186ff. 

92 Thomas P. Abernethy, “The Early Development of Commerce and 
Banking in Tennessee,” Mississippi Valley Historical Review 14 (December 1927): 
311-25. Claude A. Campbell, The Development of Banking in Tennessee (Nashville, 
Tenn.: Vanderbilt University Press, 1932); Joseph Floward Parks, “Felix Grundy 
and the Depression of 1819 in Tennessee,” Publications of the East Tennessee His- 
torical Society 10 (1938): 20. 

94 William E. Beard, “Joseph McMinn, Tennessee’s Fourth Governor,” Ten- 
nessee Historical Quarterly 4 (June 1945): 162-63; and Philip Hamer, Tennessee, A 
History, 1673—1932 (New York: American Historical Society, 1933), pp. 229-40. 

95 Parks, Abernethy, Hamer, passim. 

Direct Relief of Debtors 


relief platform. 96 The relief proposals centered on the banking sys- 
tem and on stay laws for debts. Many other legislative candidates 
also ran on a relief platform and were active in proposing plans of 
action. Many of the candidates gathered in the Davidson County 
courthouse (Nashville is in Davidson County), on July 19, to discuss 
the need for relief. They were supported by the influential Nashville 
Clarion, which urged the legislature to suspend execution of debt 
judgments. 97 Grundy and numerous other reliefers were elected, 
and, soon after the legislature opened, Grundy opened the relief 
struggle by introducing a set of resolutions. 98 The resolutions began 
by pointing to the distress prevailing in the state, which “requires 
the early and serious attention of the legislature.” The Grundy res- 
olution did not mention a stay law, but implied it and urged that 
creditors be prohibited from forcing debtors to pay in specie. It 
advocated forcing creditors to accept the notes of state banks at par 
or forfeit their debt. 

Following up his resolutions, Felix Grundy introduced a bill in 
the Tennessee Flouse staying all executions of judgments for two 
years, unless creditors accepted notes of the leading banks in the 
state at par. 99 Passage of this bill in October, 1819, by an over- 
whelming vote of 24 to 10 in the House and a similar majority in 
the Senate, constituted the first major victory for the debtors’ relief 

"Grundy later became a supporter of Andrew Jackson, a United States 
senator, and attorney general under Van Buren. 

"Nashville Clarion, August 10, 1819. Cited in Joseph Howard Parks, Felix 
Grundy (Baton Rouge: Louisiana State University, 1940), p. 21. The Clarion 
was owned by Thomas G. Bradford, a political follower of the wealthy land 
speculator from rural Bedford County in mid-Tennessee, Andrew Ervin. See 
Charles G. Sellers, Jr., “Banking and Politics in Jackson’s Tennessee, 
1817— 1827,” Mississippi Valley Historical Review 41 (June 1954): 61-84. 

98 Parks, “Felix Grundy,” p. 22. 

"For example, the Bank of the State of Tennessee and the Nashville Bank. 


The Panic of 1 81 9 

forces in Tennessee. 100 Another conditional stay law passed in the 
1819 session was one introduced by Representative William 
Williams, of Davidson County. This provided that when a bank was 
the creditor and refused to accept at par, in payment of a debt 
judgment, either its own notes or the notes of the two leading banks 
in Tennessee, the execution would be stayed for two years. This bill 
was passed overwhelmingly with very little opposition. Another aid 
to the debtors passed in this session was a bill by Williams tighten- 
ing the usury laws, by setting maximum rates of interest on loans. 101 

During early 1820, relief agitation grew in strength, this time 
centering on proposals for a new state loan office or bank to issue 
inconvertible paper along with further stay provisions. The reliefers 
called for a special session in the spring of 1820. It is interesting to 
note the Nashville Clarion proudly proclaimed that several men of 
wealth had taken the lead in the call for an extra session. Typical of 
the appeals for a special relief session was the petition of citizens 
from Williamson County, adjacent to Davidson. 1 " 2 The petition 
pointed to the great decline in the price of produce, to the contrac- 
tion of bank credit, and to the consequent multiplying suits for debt 
payment. Blame was laid on the “avidity of the creditors to collect,” 
which seems to increase “in an inverse ratio to the ability of the 
debtor to pay.” Unless relief were offered quickly, warned the peti- 
tion, most of the citizens would suffer insolvency and ruin. East 
Tennessee, the region centering on Knoxville as its leading city, was 
largely opposed to the relief program and to the proposed special 
session. 103 Typical was the vigorous disapproval of the Knoxville 

lori Tennessee General Assembly, journal of the House of Representatives, 1819, 
p. 245; Public Acts of Tennessee, 1819, p. 44. Sellers’ contention that this bill was 
a weakening of support for relief by Grundy does not seem convincing. 
Rather it appears to be the first step by the relief forces toward a compre- 
hensive relief program. Sellers, “Banking.” 

lOlparks, “Felix Grundy,” pp. 25ff. 

1() -Hamer, Tennessee, p. 233. 

103 West Tennessee was not a factor in public sentiment, since it was prac- 
tically unpopulated. 

Direct Relief of Debtors 


Register. 104 It declared that the people were opposed, and charged 
that the huge number of petitions for relief and a special session, as 
described in the Nashville press, had come from only three counties 
endorsed by “but half a dozen signatures.” The honest, the indus- 
trious, the prudent citizens needed no relief and desired no special 
session. The demand for relief, charged the Register, was coming 
from those who had made purchases without capital, and lived in 
luxury beyond their means. “Now that they have run their race, they 
wish the Legislature to pass a law that they may keep their honest 
creditor from recovering his debts.” A grand jury from Sumner 
County, adjacent to Davidson County, declared that those seeking 
relief were not the poor and needy but those large businesses and 
speculators who had extended their credit with the banks; more- 
over, only these wealthy debtors would benefit from relief. 1 " 5 The 
Courier, from Murfreesboro, a town near Nashville, replied that the 
debtors’ distress was not owing to their own imprudence but to a 
“fall of foreign markets, and the domestic scarcity of a circulating 
medium,” resulting in a great fall in the value of property. Legisla- 
tive interference, it concluded, was necessary to save the people 
from bankruptcy and ruin. 1 " 6 The East Tennessee opposition had a 
different view of the consequences of stay legislation. Thus, the 
Knoxville East Tennessee Patriot admitted that a stay law might give 
temporary relief to some people, but warned that its impairment of 
contracts would lead to increased rather than diminished bankrupt- 
cies. 1 " The East Tennesseans had even made a strong but unsuc- 
cessful effort to nip the debtors’ relief campaign in the bud by send- 
ing Enoch Parsons, losing gubernatorial candidate in 1819, to 
Nashville to campaign against Felix Grundy’s election. 1 " 8 

104 Issue of June 20, 1820. 

105 Nashville Whig, June 7, 1820. Cited in Sellers, “Banking,” p. 69. 
106 Nashville Whig, May 24, 1820; June 14, 1820. 

1(l7 Parks, “Felix Grundy,” pp. 27 ff. The Patriot declared that times were 
very hard in East Tennessee as well, but that this measure could not improve 

108 Ibid., p. 29. 


The Panic of 1 81 9 

While the opponents of debtors’ relief charged that wealthy 
debtors were behind the movement, the relief forces made a simi- 
lar charge. The Nashville Clarion , ignoring the eastern Tennessee 
opposition and its own praise for the wealthy supporters of relief, 
blundy charged that the only opposition to relief came from land 
speculators and the “monied aristocracy of Nashville” opposed to 
the relief of the people. 109 In fact, much vigorous opposition to 
debtors’ relief centered in Nashville and Davidson County itself, 
despite the fact that the relief forces stemmed from that area. The 
Nashville Gazette retorted to the Clarion’s charge that in the opposi- 
tion there were “men who have money — and men who have none.” 
The opposition to relief legislation cut across lines of wealth. 110 

Governor Joseph McMinn, elected in 1819, granted the wish of 
Grundy and the relief forces, and called a special session for June 
26. 111 In his opening address, McMinn pointed to the unprece- 
dented general pressure and urged that debtors be saved from 
destruction. 112 “The people should be made to see,” he declared, 

that public agents . . . have not abandoned them in their 
affliction. Men’s confidence in each other’s solvency will 
be restored; the thirst for purchasing at sheriff’s sales 
will be allayed; treasures which are now hoarded up to be 
used in fattening on calamity will be drawn out and again 
circulated in the ordinary channels of useful industry. 

Thus, McMinn emphasized the ending of hoarding as a prime ele- 
ment in recovery. The relief advocates agreed with their opponents 

109 Issue of May 23, 1820. 

110 Nashville Gazette, June 14, 1820. Cited in Parks, “Felix Grundy,” p. 29. 
The Nashville Gazette, edited by George Wilson, was established by the 
dominant Overton faction of Tennessee politics, headed by Nashville land 
speculator, John Overton, reputed to be the wealthiest man in Tennessee. 
See Sellers, “Banking.” 

1 1 'McMinn was an eminent politician of Tennessee, three times elected to 
the United States Senate, and three times Governor. 

"-Tennessee General Assembly , Journal of the House of Representatives, 1820 
(June 26, 1820): 6-17. 

Direct Relief of Debtors 


that the restoration of confidence was important to recovery, but 
urged that only aid to debtors would accomplish this end. 

To gain the objective of relief, Governor McMinn advocated a 
loan office measure to increase the supply of paper money, a stay 
law, and a minimum appraisal law The major controversy in that 
session was the loan office bill. He recommended a stay law as a 
corollary to the loan office bill, providing for a stay of execution for 
two years, unless the creditor were willing to accept the new paper 
notes at par in payment for the debt. McMinn further suggested a 
minimum appraisal law which would compel the creditor to accept 
the debtors’ property at a valuation fixed by a governmentally 
appointed committee of arbitration. 

The next day, June 27, Felix Grundy moved to refer the three 
proposals of the Governor to a Joint Select Committee on the 
Pecuniary Distress. The committee included the leading anti-relief 
stalwarts in the legislature, in addition to Grundy. But the McMinn- 
Grundy leadership counted on Representative Samuel Anderson, 
from Robertson County in mid-Tennessee, to cast the deciding vote 
in favor of the relief proposals. Instead, Anderson turned against 
the stay and appraisal bills and caused alarm in the relief camp by 
submitting the committee report on the next day, rejecting any stay 
or minimum appraisal law as “inexpedient and unpolitic.” 113 
Grundy acted swiftly, however, and a day later succeeded in “pack- 
ing” the committee with four more of his supporters, with Grundy 
himself becoming chairman. Backed by petitions from citizens of 
Warren and Smith Counties (in mid-Tennessee) supporting the 
relief proposals, Grundy reported the stay and loan office bill to the 
House on July 4. He allowed the minimum appraisal bill to die in 
committee, rejecting it as too extreme. 

In the debate on and eventual passage of the bills, most of the 
effort was centered on the loan office. The stay law was opposed 
almost singlehandedly by Representative Williams, now a staunch 

113 Ibid., June 28, 1820, p. 23. 


The Panic of 1 81 9 

opponent of relief. He moved to strike out the requirement that 
the creditor must receive loan-office notes or suffer a two-year stay 
in execution. This amendment was overwhelmingly defeated by a 
vote of 14 to 3, despite a petition from rural Giles County of mid- 
Tennessee, condemning the law as “impolitic and improper.” 114 
Williams tried a similar motion a week later, but lost by a vote of 
eleven to four, and the stay provision became law along with the 
new state bank. 115 

Although the relief movement triumphed in 1819 and 1820, the 
climate of public opinion had changed sharply by mid- 1821. The 
new state bank and its paper were not faring well, the nationwide 
depression was receding, and the Supreme Court of Tennessee 
handed down a decision in June declaring the stay provision uncon- 
stitutional for compelling acceptance of the new bank notes. In the 
gubernatorial campaign of the summer of 1821, both candidates vig- 
orously opposed the relief program. Colonel Edward Ward and 
William Carroll were wealthy merchants and prominent citizens of 
Nashville, and both were firm friends of Andrew Jackson. It is 
instructive that Carroll ran his campaign as the “people’s candidate” 
against the wealthier Ward. 

Carroll’s decisive victory in the gubernatorial race did not intim- 
idate Governor McMinn, who, in his farewell message to the legis- 
lature, again urged a minimum appraisal law, and also suggested a 
replevin law, so that the debtors could win back their forfeited 
property. 116 McMinn’s proposals were referred to Felix Grundy’s 
Committee on Pecuniary Embarrassments, and Grundy’s report sig- 
naled the turn of the tide for the relief movement in Tennessee. 

114 Tennessee General Assembly, journal of the Senate, 2d Session, 1820 
(July 7 and July 14, 1820). 

115 Ibid., July 21, 1820. 

116 Tennessee General Assembly, journal of the House of Representatives, 1821 
(September 17, 1821): 6ff. 

Direct Relief of Debtors 


Grundy noted that the greatest distress during the crisis had 
been caused by the large accumulated debt. He declared that, since 
1819, three-fifths of the debt owed to easterners had been liqui- 
dated, and that this relieved the pressure on the numerous Ten- 
nesseans in debt to eastern creditors. The economy was reviving, 
and the situation was no longer grave. He therefore rejected an 
appraisal law as a violation of contract, but staunchly defended the 
worth of the stay law in averting debtors’ ruin. 117 Later, Grundy 
attacked the courts for ruling against the stay laws, and was joined 
by the Knoxville Intelligencer and the Nashville Whig. 

The anti-relief tone of the new administration was set by Gov- 
ernor Carroll’s opening address. 118 It was mainly devoted to paper 
money, but he also attacked the stay and proposed appraisal and 
replevin laws as violations of contract. 119 Carroll declared that the 
relief measures had brought momentary relief for some, at the 
expense of increasing the general distress, and had caused the ruin 
of thousands through sudden fluctuations of credit and extreme 
depreciation of currency. The debtors’ situation was still trouble- 
some despite Grundy’s optimism, and the press continued to adver- 
tise many sheriff’s sales. The relief forces again tried to pass a stay 
and an appraisal law, but without success. As a matter of fact, 
Grundy managed to push through another minimum appraisal law 
in October, 1823, but the court decision effectively ended any such 
stay law in Tennessee. By the fall of 1822, Governor Carroll could 
report a virtual ending of the economic crisis in Tennessee. 120 

117 Ibid., October 2, 1821, pp. 114-15. 

118 Hamer, Tennessee, p. 238. 

119 This address was praised by the influential Hezekiah Niles, who 
denounced state relief laws — particularly those of Kentucky and Tennessee — 
as the work of dishonest debtors seeking special privilege. Niles’ Weekly Regis- 
ter2\ (November 3, 1821): 146. 

120 Gabriel H. Golden, “William Carroll and His Administration,” Tennessee 
Historical Magazine 9 (April 1925): 19. 


The Panic of 1 81 9 

The citizens of the state of Kentucky found themselves heavily 
burdened with insolvent debtors and forced sheriffs’ sales for exe- 
cution of suits against debtors. 121 As in Tennessee, the major focus 
of agitation on the state level was the banking system; but agitation 
over stay laws was also widespread. In Kentucky, a stay law had long 
been embedded in the state’s legislation. As early as 1792, the state 
had passed a minimum appraisal law; and it had passed a stay law in 
1814—15, providing a twelve-month stay should any creditor refuse 
to accept at par the notes of the state’s leading bank — the Bank of 
Kentucky — and a mandatory three-month stay even if the creditor 
accepted the notes. 122 

The campaign of the relief forces was waged largely over stay- 
replevin legislation, and the elections in the fall of 1819 were an 
overwhelming victory for the relief forces. In the bitter fights over 
proposed stay legislation, two new newspapers were inaugurated in 
the city of Frankfort: the Patriot, to support the relief program, and 
the Spirit of ’76, to oppose it. 12 ' 1 The first relief act to pass was an 
“emergency” stay law, staying all executions for sixty days; this was 
passed on December 16, 1819. 124 Governor Gabriel Slaughter, 
opposed to relief, vetoed the law, but the legislature was able to 
override the veto. A very strong stay law was passed the following 

121 Thus, see Arndt M. Stickles, The Critical Court Struggle in Kentucky, 
1819—29 (Bloomington: Indiana University Press, 1929), pp. 20ff. Also see 
General Basil W. Duke, History of the Tank of Kentucky, 1792-1895 (Louisville: 
A.C. Morton and Co., 1895), pp. 14-21. For a contemporary account of debt 
burdens in Kentucky, Philadelphia Union, July 3, 1821. 

122 Connelley and Coulter, History , vol. 2, pp. 608f£; Samuel M. Wilson, 
History of Kentucky (Chicago: The S. J. Clarke Publishing Co., 1928), vol. 2, 
pp. 121—27; Sumner, History of Tanking, p. 121. 

122 Orval W. Baylor, John Pope, Kentuckian (Cynthiana, Ky.: The Hobson 
Press, 1943), pp. 153-63. Pope, Secretary of State under Governor Slaughter 
and a director of the Bank of Kentucky, became the leading opponent of the 
debtors’ relief program. 

124 Kentucky General Assembly, Journal of the House of Representatives, 1819 
(December 16, 1819): 811. 

Direct Relief of Debtors 


February 11, providing a mandatory one-year stay of execution if 
the creditor accepted Bank of Kentucky notes at par in payment, or 
a two-year stay if the creditor refused. 

The crisis was intensified by the alarm felt by creditors at this law 
and by their growing reluctance to lend. 125 The depression contin- 
ued in full force during 1 820, and the reliefers began to concentrate 
their attention on proposals for a new state bank. Postponement of 
payment does not after all liquidate the debt burden, and it has been 
estimated that over $2 million of debt was under execution in this 
period. A bank was expected to grant indirect but effective relief by 
supplying new money to debtors. Passage of such a measure was 
assured by the election of Governor John Adair, a leader of the 
relief forces. A bank was established and, further, a new stay law 
passed on Christmas Day, 1 820. The new law extended existing pro- 
visions, but now provided a stay of two years, unless the creditor 
accepted either Bank of Kentucky or the new state-owned Bank of 
Commonwealth notes. The law gave preference to the new bank by 
continuing the mandatory one-year stay even if the creditor 
accepted Bank of Kentucky notes, while only imposing a three- 
month stay for acceptance of Bank of Commonwealth notes. This 
was succeeded by a full mandatory twelve-month stay in February, 
1820. Further relief to debtors was granted by a law exempting var- 
ious tools and implements from forced sale for debt payments and 
by special stays for executions on real estate. 

Throughout 1 820, the cherished goal of the relief forces was the 
passage of a general “property law,” which would have been the 
most drastic relief legislation in the nation. This would have indefi- 
nitely postponed all sales of property under execution. However, 
this ambitious attempt never came to a vote. In the fall of 1821, the 
legislature moved again to block the infuriated creditors; by Decem- 
ber, 1821, a minimum appraisal law was passed. It prohibited the 
sale of property at forced sale for less than three-quarters the value 

125 Stickles, Critical Court Struggles, p. 23. 


The Panic of 1 81 9 

set by a jury, unless the creditor agreed to receive Bank of Com- 
monwealth or Bank of Kentucky notes in payment. 126 

For a few years, the debtors reaped a substantial harvest from 
the stay and from bank legislation. The Bank of Commonwealth 
notes soon depreciated to half, as compared to specie. The juries 
and judges of Kentucky during 1821 and 1822 adopted a “scaling 
system” in their verdicts on damages and executions for debt con- 
tracts. For example: if a creditor sued a debtor for payment on a 
debt of one hundred dollars, and the debtor had already paid fifty 
dollars, the magistrate or jury “assumed” that the fifty “dollars” paid 
consisted of specie rather than notes (which, of course, was not the 
case), on the grounds that there was no proof to the contrary. Then, 
as a one dollar specie was now worth two dollars of Commonwealth 
notes, the debt was judged fully canceled, and, in addition, a judg- 
ment for court costs was levied against the creditor. 127 

The proponents of debtors’ relief argued that the legislature was 
obliged to provide relief in times of distress. Indeed, they consid- 
ered themselves generous for not going so far as to repudiate all pri- 
vate debts completely. 128 The opposition assailed the measures as 
repudiating contracts, and asserted that the only remedies to help 
the debtors in the long run were thrift and industry. Stay laws were 
attacked as leaving the creditors’ property in the hands of specula- 
tors and as greatly hampering credit. 1-9 The bitterness of the oppo- 
sition increased as the relief system continued, and, as the economy 
recovered, it succeeded in turning the relief tide. As early as the 
1822—23 session, the legislature reduced the stay provision from two 
years to one year, and by 1824 the stay laws were repealed. L ’° In the 

126 Kentucky General Assembly, journal of theHouse of Representatives, 1821—22 
(December 19, 1821): 475. 

127 Kentucky General Assembly, Journal of theHouse of Representatives, 1819, 

p. 161. 

128 “Solon,” Liberty Saved (Louisville, Ky.: by the Author, no date), p. 8. 
129 Thus, Frankfort Argus, quoted in Washington (D.C.) National Intelligencer, 
June 9, 1819. 

130 Wilson, History of Kentucky, p. 133. 

Direct Relief of Debtors 


meanwhile, the decision of the state courts that the relief legisla- 
tion was unconstitutional precipitated a vigorous and prolonged 
political controversy over the judiciary, the anti-reliefers finally 
winning by 1826. 

One of the most interesting approaches to the problem of 
debtor’s relief was that of Amos Kendall, at this time editor of the 
influential Frankfort Argus of Western America, and later one of the 
chief theoreticians of the war against the Second Bank of the 
United States. Kendall, though not completely opposed to relief, 
was disturbed at some of the extreme stay legislation, particularly 
the proposed property law, which would have repudiated all debts. 
In a series of articles in the Argus, 131 Kendall considered one of the 
favorite relief arguments: that debtors were unduly burdened 
because they had borrowed when the money unit had a lower value 
in purchasing power, and must now repay their debt when money 
had a higher value. Kendall began with a discussion of utility, devel- 
oping in essence the subjective theory of value and the law of 
diminishing utility. He deduced that, since value depended on the 
desires of men, and since these desires were always changing, 
desires and values could not be reduced to any standard of meas- 
urement. A unit of measure was always fixed, and yet all values were 
continually changing. Hence, there was no such thing as a standard 
of value, and money could not be used for such a standard. Turn- 
ing to money, Kendall traced its development from barter and indi- 
rect exchange, until the money-commodity became a general 
medium of exchange. This process revealed that money was simply 
a commodity, albeit the most useful and exchangeable one — a com- 
modity the value of which was always changing. Therefore, money 
could by no means serve as a standard of value, and from this 
Kendall deduced that the relief argument, resting on the assump- 
tion of money as a standard of value, was untenable. 132 In the fol- 
lowing year, Kendall denounced wasteful governmental expendi- 
tures and concluded emphatically that the legislature could not 

331 Frankfort H/gwr, April 27, 1820 and following. See Amos Kendall, Auto- 
biography, William Stickney, ed. (Boston: R Smith, 1872), pp. 230-35. 

132 Kendall, Autobiography, p. 244. 


The Panic of 1 81 9 

relieve debts. “The people must pay their own debts at last.” They 
must rely on their own power and resources and not on that of the 
banks or legislature. 11 ’ 

Thus, faced with widespread debts and insolvencies, states in 
every region were confronted with, and wrangled over, debtors’ 
relief proposals. Stay laws were considered in the eastern legislatures 
of Delaware, New Jersey, New York, Maryland, Vermont, Massa- 
chusetts, Pennsylvania, and Virginia, as well as in the western states 
of Ohio, Indiana, Illinois, Missouri, Louisiana, Tennessee, and Ken- 
tucky. Minimum appraisal laws were also considered in almost all of 
these states. Stay laws were passed in Maryland, Vermont, Ohio, 
Indiana, Illinois, Missouri, Louisiana, Tennessee, and Kentucky; 
minimum appraisal laws were passed in far fewer states: Ohio, Indi- 
ana, Missouri, Pennsylvania, and Kentucky. 

If final passage is considered, the western states were the strong- 
hold of relief measures. However, Pennsylvania passed a combined 
minimum appraisal and stay law, and there were at least sizable 
minorities demanding stay and minimum appraisal laws in such 
important and conservative states as Delaware, New Jersey, New 
York, and Virginia. Vermont and Maryland passed stay laws, and 
New York modified its judgment procedure slightly to ease the 
strain of insolvent debtors. Rhode Island eased the burdens of 
debtors to banks. Neither was the western experience uniform. 
Ohio and Indiana, for example, passed their legislation overwhelm- 
ingly, while there was bitter controversy in Missouri, Tennessee, and 
Kentucky. Four of the western states passed appraisal laws, while 
they could not pass in Illinois and Tennessee. 

Within the states there was a noticeable lack of sharp division 
along sectional lines in controversy over this legislation. Within urban 
centers and rural counties, there was sharp controversy over relief, 
and tides of opinion impressed themselves in turn up on all sections. 

Debtors’ relief proposals were often tied to schemes for mone- 
tary expansion, which furnished one of the richest areas of contro- 
versy during the depression. 

133 Frankfort July 5, 1821, in Kendall, Autobiography, p. 245. 


State Proposals and Actions 
for Monetary Expansion 

Much of the response of the American people to the depression 
centered on monetary problems. One major group of proposals 
advocated that governmental measures — federal or state — combat 
the monetary scarcity. Since the banks were chartered by the states, 
the supply of money was largely a state problem, and the bulk of 
the discussion was waged at the state level. 

The new state of Alabama, which entered the Union in 1819, 
had been a particular beneficiary of the postwar boom, with its 
great rise in cotton prices and its influx of immigrants. Alabama was 
the major center of speculation in public land purchases. Of the 
$22 million of public land debt outstanding in 1 820 half was located 
in Alabama. Speculation in public lands was financed by the banks 
and spurred by the high price of cotton. Credit in Alabama was 
financed by three banks chartered in 1816 and 1818. It was also 
financed by new banks in Tennessee and Kentucky, the debtors 
migrating from these states to Alabama in the boom years. 1 The 
opinion was common in Alabama that banks were great engines for 
developing the country’s resources, particularly the potential cotton 
lands of the area. Banks were expected to create money and 
increase capital. 2 

Tor the economy of Alabama in this period, see Abernethy, Formative 
Period, pp. 25, 50f£, 86ff. 

2 The Bank of St. Stephens opened in September 1818, with only $7,700 
of paid-in capital. U.S. Congress, American State Papers: Finance 3, no. 637 (Feb- 
ruary 14, 1822): 767-68. 



The Panic of 1 81 9 

Alabama was divided into two separate trading areas, with litde 
connection between them. Northern Alabama was connected with 
the Tennessee Valley and used Tennessee bank notes; its farmers 
sold in local markets or floated produce to New Orleans. Southern 
Alabama sent its cotton to Mobile and used Georgia and South Car- 
olina bank notes. The chief bank in northern Alabama, the Mer- 
chants’ and Planters’ Bank of Huntsville, was greatly affected by the 
suspensions of specie payment of the Tennessee banks during the 
crisis of 1819 and was forced to suspend specie payments in 1820. 
The notes of the Huntsville Bank depreciated rapidly with respect 
to specie although they continued to circulate at par with Tennessee 
bank notes. Specie and par bank notes began to pass from circula- 
tion into hoards. Northern Alabama suffered from a depreciating 
currency. Southern Alabama, on the other hand, possessed two 
sound banks, but they were very small and were of litde importance. 
This area used the notes of solvent banks in South Carolina and 
especially Georgia. Both regions abounded in complaints of a 
“scarcity of money.” 

As a remedy for the monetary scarcity, business houses began to 
print “small change tickets,” declared to be worth twenty-five cents, 
and municipalities also engaged in this practice. There were wide- 
spread irregularities and forgeries. Finally, the Alabama legislature, 
in 1821, prohibited the issuance of private change tickets, leaving 
the issue of small notes to municipal governments. 3 

One particularly important monetary problem was the suspension 
of payment by the Huntsville Bank and the consequent depreciation 
of its notes. In 1821, the legislature refused to abide by the existing 
law which forbade accepting notes of non-specie paying banks in 
taxes. The decision to accept the depreciated notes was defended by 
Governor Thomas Bibb as necessary to avoid excessive harshness 

3 Abemethy, Formative Period, pp. 86ff. 

State Proposals and Actions for Monetary Expansion 


toward the citizens of northern Alabama. 4 This state forbearance bol- 
stered the acceptance and raised the exchange rate of the Huntsville 
notes throughout the state. The Alabama legislature went further and 
issued Treasury notes payable in the depreciating currency of the 
Huntsville Bank. Under the government umbrella, the Huntsville 
Bank issued large quantities of notes, which sank to a 25—50 percent 
discount. The Treasury warrants depreciated correspondingly. 5 

With such disappointing results, the legislators began to look to 
another solution for the monetary difficulties: the establishment of 
a large, state-wide, state-owned bank. The constitution of Alabama 
in 1819 had specifically authorized the establishment of a state 
bank, with the state to own two-fifths of the stock. 6 

The legislature therefore chartered the Bank of the State of 
Alabama, on December 21, 1820, with a very large authorized cap- 
ital of $2 million to which the state would subscribe $800 thousand. 
Unfortunately for the plan, however, the constitution had also pro- 
vided that half of the capital stock must be paid in specie before 
beginning operations, and no such public subscriptions were forth- 
coming. The Bank remained a stillborn project.' 

The legislature adopted another plan the following year: to con- 
solidate the three private banks of the state into an amalgamated 
state bank. This bank plan was vetoed by the new Governor, Israel 
Pickens. The ostensible reason for the veto was that the plan linked 
a state bank with private banks. Actually, Governor Pickens was 
politically powerful in Southern Alabama, a region that had been 
angered by the actions of the Huntsville Bank and at the favoritism 

^Alabama General Assembly, Journal of the Senate (1821): 8-9. By 1823, ex- 
Governor Bibb had become a director of the Huntsville Bank. 

Philadelphia Union, November 2, 1821. 

6 Knox, A Historj of Ranking, p. 594. 

7 Albert B. Moore, Histoiy of Alabama (Chicago: American Historical Soci- 
ety, 1927), vol. 1, pp. 159-60. 


The Panic of 1 81 9 

shown toward it by Governor Bibb and the previous legislators. 8 
For his veto, Pickens was hailed by many of his followers as the sav- 
ior of Alabama. Pickens’s veto was followed by barring the depreci- 
ated Huntsville Bank notes from acceptance in taxes. The result was 
a further rapid depreciation of Huntsville notes. 

It is true that Pickens’s actions removed the state prop from the 
non-specie paying Huntsville Bank and defeated one plan for a 
state-owned bank. But Pickens was not necessarily opposed to state 
measures for monetary expansion. On the contrary, he advocated a 
state bank that would be wholly state-owned, non-specie paying, 
and would use forthcoming public land revenue for eventual 
redemption. Such a bank was finally established in December, 1 823, 
but came too late to be considered an anti-depression measure. 
While Pickens and the Huntsville group each favored some form of 
monetary expansion, many in the commercial communities were 
opposed to the whole idea, in particular the newspapers of the 
metropolis Mobile. 

The Alabama experience highlights the two basic measures for 
monetary expansion advocated or effected in the states: (1) meas- 
ures to bolster the acceptance of private bank notes, where the 
banks had suspended specie payment and where the notes were 
tending to depreciate; and (2) the creation of state-owned banks to 
issue inconvertible paper notes on a large scale. Of course, the very 
fact of permitting non-specie paying banks to continue in opera- 
tion, was a tremendous aid to the banks. 

State-owned banks also existed in the neighboring state of 
Louisiana and in the territory of Mississippi, but these had been 
established prior to the crisis, and played a conservative rather 
than an expansionist role. The Bank of Mississippi, the only bank 
in the infant territory, had been formed from a private bank in 
early 1818, and was partially government-owned. The bank was 
partly independent of the government, but its notes were the legal 

8 Pickens himself was President of the Tombeckbee Bank of St. Stephens. 
Abernethy, Formative Period, pp. 93ff. 

State Proposals and Actions for Monetary Expansion 


tender for the territory. The major struggle in the Mississippi leg- 
islature occurred over a bill by Representative Harman Runnels, of 
Lawrence County in central Mississippi, to authorize the receipt in 
taxes of bank paper from Alabama, Georgia, and South Carolina. 
This passed the legislature after a largely sectional fight between 
the eastern and central sections of the state, on the one hand — 
oriented toward the southeastern states — and more wealthy, com- 
mercial Natchez, leading town in the state and oriented toward 
Louisiana and the Mississippi River. Governor George Poindexter 
vetoed the bill, and it failed to pass over his veto. 9 

The Louisiana State Bank, established in early 1 81 8, 10 continued 
to be conducted with great caution. The Report of the House Com- 
mittee on the Louisiana State Bank, in the 1819 legislature, praised 
the bank for its conservative discount policy and declared that the 
bank was necessary because of the great scarcity of specie in 
Louisiana and adjoining states. 11 In fact, the Committee suggested 
that the bank could perhaps be more liberal in granting loans. 

In Louisiana the crisis and the scarcity of money led to a tight- 
ening of credit rather than expansion. Typical was the reaction of 
the New Orleans Louisiana Gazette, which feared that “too much 
regulation” was becoming the order of the day, with “paper systems 
to substitute for gold and silver” — “one of the hobby horses of our 
times.” 12 

9 Poindexter was one of the leading politicians in the State, and later 
became a staunch Whig. On the veto of the Runnels Bill, see Robert C. Weems, 
Jr., The Bank of the Mississippi: A Pioneer Bank of the Old Southwest, 1 809 -44 (New 
York: Columbia University, 1951, microfilm), p. 388. 

10 Stephen A. Caldwell, A Banking History of Louisiana (Baton Rouge: 
Louisiana State University Press, 1935). 

1 Louisiana General Assembly, Official Journal of the Proceedings of the House 
of Representatives, 1819 (January 18, 1819): 16. 

12 Issue of May 6, 1820. Quoted in Joseph George Tregle, Jr., “Louisiana 
and the Tariff, 1 816 — 46,” Louisiana Historical Quarterly 25 (January 1942): 35. 


The Panic of 1 81 9 

The state of Georgia had invested in private banks from the 
establishment of its first bank of 1807. 11 These investments were 
for revenue purposes, however, rather than efforts to expand the 
supply of money. Before the war, revenues from the state’s invest- 
ment in banks had nearly covered the total state expenditure, so 
that, after the war, the state increased its investment, culminating in 
the largely state-owned Bank of Darien, established in 1818. The 
latter bank was the depository of state funds, capitated at $ 1 .6 mil- 
lion of which over $600 thousand was paid up, and had branches 
throughout the state. 14 A proposal for an agricultural bank, how- 
ever, was turned down by the legislature at the same time. 1 ' 1 Banks 
were welcomed also for their aid in supplying money and credit to 
the merchants and planters of the state, and the Bank of the United 
States branch at Savannah was originally welcomed for the same rea- 
son. The branch expanded credit, while the Georgia banks engaged 
in heavy expansion of credit for purchases of Alabama public lands. 
When the panic struck, the Bank of the United States pursued a 
policy of forced contraction of the notes of its branches, leading to 
calls on the state banks to pay their balances due to the United 
States Bank. In Georgia, these balances were particularly heavy, 
because of the widespread use of Georgia bank notes in payment 
for the Alabama lands, and the deposit by the federal government 
of these funds in the Bank of the United States branch at Savannah. 

The contraction policy of the Bank of the United States resulted 
in mounting bitterness against it among the local banks and the pop- 
ulation of the state. A joint committee of local banks charged a plot 

13 Thomas P. Govan, “Banking and the Credit System in Georgia, 1810-60,” 
Journal of Southern Histoiy 4 (May 1938): 166f£ 

14 George G. Smith, The Story of Georgia and the Georgia People, 1732—1860 
(Macon, Ga.: G.G. Smith, 1900), p. 300. 

15 Milton S. Heath, Constructive Liberalism (Cambridge, Mass.: Harvard Uni- 
versity Press, 1954), pp. 176-78. 

State Proposals and Actions for Monetary Expansion 


on the part of the bank to destroy them. 16 In 1820, the Georgia leg- 
islature suspended the legal 25 percent interest penalty provision for 
nonpayment of specie by its banks, in so far as the nonpayment 
applied to debts owed to the Bank of the United States. 17 In the 
summer of 1821, the two Savannah banks (the Planters’ Bank and 
the Bank of the State) took advantage of this provision to suspend 
specie payments to the Bank of the United States, while continuing 
them to individual note holders. In December, 1821, the Georgia leg- 
islature again voided the interest penalty on nonpayment of notes to 
the Bank of United States and extended this action to all cases of 
nonpayment. In recommending this action, the joint committee on 
the state of the banks of the Georgia legislature attacked the Bank 
of the United States Savannah branch for refusing to expand its note 
issue, and for draining the state banks of specie. 18 

The Bank of the United States sued in the courts, and the 
Supreme Court of the United States voided the Georgia law in 
1824, whereupon Georgia repealed the law. 19 Meanwhile this severe 
action by the Georgia legislature and banks disturbed Secretary 
William H. Crawford, one of Georgia’s leading politicians, and he 
took steps to ease the Georgia monetary situation. He ordered the 
Treasury office in Alabama to deposit all its funds in the Bank of 
Darien instead of the Bank of United States branch at Savannah. In 
its new role as Treasury fiscal agent, the Bank of Darien was able to 
continue the expansion of discounts and note issues, that it had 
originally based on the state’s stock subscription at the opening of 
the bank. In 1822, when the depression was over, the Treasury 
removed its funds from the Bank of Darien and returned them to 
the Savannah branch of the Bank of the United States. As a result 

^Report on the joint Committee of the Planters’ Bank and the Bank of 
the State of Georgia, June 21, 1820, in U.S. Congress, American State Papers: 
Finance 4, pp. 1055-56. 

17 Govan, “Banking,” p. 169. 

18 Washington (D.C.) National Intelligencer, December 15, 1821; Heath, Con- 
structive Liberalism, p. 188. 

19 Heath, Constructive Liberalism, p. 182. 

The Panic of 1 81 9 

of its previous expansion and renewed pressure by the United 
States Bank, the Bank of Darien suspended specie payment, its 
notes depreciating rapidly by 1824. 2 " 

The justification for the Georgia government’s action in pro- 
tecting the banks against the specie demands of the Bank of the 
United States was provided by Governor John Clark in his message 
to the legislature of November 7, 1820. 21 Countering fears of 
depreciation, Clark admitted that the action might cause Georgia 
notes to depreciate outside the state, but justified it as preserving an 
important source of state revenue — the state’s bank investments — 
and as insuring “a circulating medium sufficient to supply the real 
wants of our citizens.” 22 

By the end of 1822, however, Clark had changed his mind on 
banks, which by now had all suspended specie payments. He 
declared his readiness to dispense with them altogether. Clark 
asserted that “the opinion . . . almost universally prevails, that the 
pecuniary embarrassments of the citizens is greater in proportion as 
you approach the vicinity of a bank.”“ 3 

Permitting banks to continue operations without redeeming 
their notes in specie was one basic means for a state to maintain or 
expand the supply of money in a time of financial crisis. The impor- 
tant neighboring state of South Carolina already had as its fiscal 
agent, a large state-owned bank, established in 1812 with a capital- 
ization of $1.1 million. This Bank of the State of South Carolina, 
while conservatively operated, suspended specie payment on Octo- 
ber 1, 1819, and continued operations until its resumption in 1823. 24 

20 Ibid„ pp. 183ff. 

2 Georgia General Assembly, Journal of the House of Representatives, 1820—21 
(November 7, 1820): 6. 

22 For an example of hard money attack on depreciation, see the Wash- 
ington (Ga.) News, reprinted in the Washington (D.C.) National Intelligencer, 
August 4, 1821. 

23 Georgia General Assembly, Journal of the Senate, 1822 (November 5, 
1822): 14-15. 

24 Knox, A History of Ranking, p. 564; Sumner, Histoty of Ranking, pp. 87, 115. 

State Proposals and Actions for Monetary Expansion 


Anger in the state was directed against the Bank of the United 
States, for the pressure on the state banks, and for the general mone- 
tary contraction. 25 Some South Carolina leaders envisioned a general 
suspension of specie payments in the state. Robert Y. Hayne, then 
Attorney General of South Carolina, anticipated that the state would 
be forced onto an inconvertible paper system. 26 He declared that the 
banks, with notes depreciating, must suspend specie payments, and he 
denounced agents of Virginia banks for buying up bank notes and 
coming to Charleston to redeem them. Hayne declared: 

It seems to me that the final result will be a stoppage of 
specie payments by all the banks and then we will find it 
necessary to follow the example of Great Britain and 
deal on paper. The time is approaching rapidly when 
gold or silver will be regarded as merchandise only and 
bill will become the current coin. 

Hayne thought that each bank could be required to maintain $1 mil- 
lion of government bonds (“stock”) and to limit its note issue to 
$1.5 million. “Might not such bills constitute a circulating medium 
and be a legal tender?” Hayne added that the legally or constitu- 
tionally required limit would be sufficient check on the danger of an 
excessive issue of the inconvertible paper, and that the notes of 
borrowers would be as good a backing for the bank notes as specie. 
He recognized that to secure a stable paper it would be necessary 
for the states — and perhaps the nations — to act in concert. Stephen 
Elliott, wealthy landowner and head of the Bank of the State, also 
advocated an inconvertible nationwide currency, based on land for 
stability of value. 

25 On the report of Stephen Elliott, appointed head of the Bank of the 
State of South Carolina, criticizing the action of the Bank of the United 
States, and the allegedly resulting scarcity of money, see Joseph Dorfman, The 
Economic Mind in American Civilisation, 1606—1865 (New York: Viking Press, 
1946), vol. 1, pp. 370-71. 

26 Robert Y. Hayne to Langdon Cheves, February 22, 1819, in Theodore D. 
Jervey, Robert Y. Hayne and His Times (New York: The Macmillan Co., 1909), 
pp. 85-87. Hayne, a wealthy rice planter, was later to become Senator and 
Governor, and leading proponent of nullification. 


The Panic of 1 81 9 

On the other hand, there was considerable opposition to any sus- 
pensions of specie payment. A leader in opposition was Jacob N. 
Cardozo, influential editor of the leading Charleston daily, the South- 
ern Patriot . 21 He attacked state-owned banks including the one in his 
state, for a tendency to overissue their notes, and to cause excessive 
spending and speculation. On the other hand, he defended the Bank 
of the United States and its branches, the existence of which pre- 
vented excessive note issues by state banks. Cardozo was particularly 
angered at plans for inconvertible paper money. He denounced these 
alleged remedies for the crisis as the “grossest quackery.” Cardozo 
maintained that inconvertible paper issues would aggravate rather 
than cure the distress. According to Cardozo, the economic difficul- 
ties were largely caused by the banks “having chocked the channel of 
circulation with paper.” This distress had to be relieved, and the only 
way that this could be done was to “return to a free exchange of 
bank notes for specie.” “There is but one mode of relief,” he 
declared, “and that is the rigid enforcement of specie payments.” 
The excess of bank notes raised prices of staples and other products 
too high, and this had practically ended the American export trade. 
Only rigid enforcement of specie payment would permit removal of 
the excess paper and the consequent revival of exports . 28 

There was a considerable amount of controversy in adjacent 
North Carolina over the actions of the banks in continuing opera- 
tions while suspending specie payments, and over the role of the 
Bank of the United States. One of the leading advocates of incon- 
vertible paper was the prominent Archibald D. Murphey, Chairman 
of the Legislative Committee on the Board of Internal Improve- 
ments. Murphey wrote to Colonel William Polk, of the State Bank 
of North Carolina (a private bank), attacking the Bank of United 
States branches for ruining banks and individuals, and calling for 

27 On Cardozo, see Dorfman, Economic Mind, vol. 2, pp. 554-55. 

28 Editorial in the Charleston Southern Patriot, reprinted in the Cleveland 
Register, August 31, 1819. 

State Proposals and Actions for Monetary Expansion 


paper unredeemable in specie . 29 To Murphey, the Bank of the 
United States constituted the “greatest crime in years.” Murphey 
squarely faced the problem of depreciation: 

[The] true interest of die state [is] to have a paper that 
has a par value at home . . . given to it by . . . the confi- 
dence of the people, and which will not pay debts or 
[circulate] distant markets without a loss. . . . The true 
mode of fixing our permanent prosperity is to adopt a 
system of policy as will give us a home market. Our 
money will easily sustain its credit among its own citi- 
zens, and if we had markets at home it could not travel 
much abroad. 30 

To help put this plan into effect, Murphey recommended that the 
legislature “throw” money into circulation in expenditure on public 
works, to the extent desired by the banks. 

The North Carolina banks were not penalized by the legislature 
for suspending specie payments to those it considered “brokers,” 
while maintaining payments to others. North Carolina was particu- 
larly exercised over the problem of the “money brokers,” who were 
generally denounced in the press. This institution grew up, almost 
inevitably, in response to the universally varying depreciation of 
bank notes. Money brokers, centering in the large cities, would buy 
up the notes of distant banks at a discount, and then send agents to 
these banks with packets of notes to claim redemption in specie at 
par. Banks with depreciating notes liked having as wide a circulation 
for their notes as possible, but naturally did not like out-of-town 

29 Murphey had been Justice of the State Supreme Court and was to 
become known as father of the state’s public school system. In 1816, Murphey 
had been a staunch advocate of a branch of the Bank of the United States in 
Fayetteville, and considered inconvertible paper as “vicious.” Now, as a debtor 
to the Bank, he felt that he was being unjustly compelled to repay. Murphey 
to Colonel William Polk, July 24, 1821, in William Henry Hoyt, ed., The Papers 
of Archibald D. Murphey (Raleigh, N.C.: E.M. Uzzell Co., 1914), pp. 216-17. 
Also Dorfman, Economic Mind, vol. 1, pp. 376-78. 

30 Murphey, The Papers, p. 216. 


The Panic of 1 81 9 

brokers descending upon them claiming payment. Many citizens 
were tempted to agree, since they found it easy to blame foreign 
brokers for their plight and the plight of the local banks. 

Thus, the influential Raleigh Star, early in the crisis, denounced 
northern money brokers and accused them of being responsible for 
the monetary contraction and suspensions of specie payments in 
North Carolina/’ 1 The Star suggested that the banks should refuse 
to pay these demands for specie and advocated outlawing the buy- 
ing and selling of coin at a premium for bank notes. The paper 
accused the brokers of being speculators, amassing princely for- 
tunes, and of being obstructionists. The Star also went so far as to 
suggest a state loan office to issue inconvertible Treasury notes 
eventually redeemed out of the revenues from taxes and the sale of 
state lands. The Star presented a detailed plan for the number of 
branches and suggested the sizable note issue of $30 thousand to be 
loaned at low rates of interest, covering only the expenses of the 

Typical of the attack on money brokers was an article by a “Gen- 
tleman in North Carolina,” pointing to the recent withdrawal by two 
New York City brokers of $100 thousand in specie from the state. 
“Gentleman” charged that the “brokers are trying to break every 
bank in the country.” 32 

Defending the actions of the banks, “A Citizen” wrote to a 
friend in the North Carolina legislature that it should not compel 
them to resume specie payment. The banks had not overissued their 
notes, he declared; if they had, why was there still a general com- 
plaint of scarcity of money? 3 ’ The writer also made a point similar 
to Murphey’s, that the fact that North Carolina bank notes were not 
depreciated within the state proved that they were not overissued. 

-^Raleigh Star and North Carolina State Gazette, May 14, 1819. 

^Washington (D.C.) National Intelligencer, May 26, 1819. Also see the edi- 
torial in the Wilmington Recorder, June 16, 1819, reprinted in the Washington 
(D.C.) National Intelligencer, July 20, 1819. 

- ,3 Raleigh Star and North Carolina State Gazette, December 22, 1820. 

State Proposals and Actions for Monetary Expansion 


Backed by government and much of public opinion, an agree- 
ment not to pay specie to brokers or their agents was made at Fayet- 
teville, in June, 1819, by the three leading banks — the state bank, the 
Bank of New Bern, and the Bank of Cape Fear. Their notes imme- 
diately fell to a 1 5 percent discount outside of the state. The banks, 
however, continued to insist that their debtors pay them in specie, 
although they loaned out depreciated notes. Further, the banks 
themselves began to send agents to New York City and elsewhere 
to buy up their own depreciated notes at a considerable discount 
and then to retire the notes. 34 

Controversy over the North Carolina bank action raged in the 
states. One Washington writer commended the banks as saving 
banks and public, and stated that unsound banks should only liqui- 
date gradually. Fie suggested this action to all the states. 35 The 
North Carolina banks were vigorously criticEed in the neighboring 
state of Virginia. One article in the leading Virginia newspaper, the 
conservative Richmond Enquirer, defended the brokers and asserted 
that the banks would suffer from the partial suspension. 36 The bro- 
kers, “Philo-Economicus” maintained, “were the only persons who 
kept up the value of the paper.” A Virginian would take a North 
Carolina note at par if he knew that at any time he might sell them 
to brokers for Virginia paper at a 2 percent discount. Should the 
brokers refuse to purchase the paper, the notes would depreciate 
and disappear from circulation to return to the issuing bank. “Few 
people will be willing to take it at a loss of 8 to 10 percent, and it 
will therefore be driven back to the counter where it first saw the 
light.” Thus, the individual noteholders themselves would more 
quickly return the notes to the bank, and the banks’ partial suspen- 
sion would be of little avail. 

The action of the North Carolina banks also drew sharp criti- 
cism from the influential New York Daily Advertiser, which 

- ,4 Knox, A Hisfoty of Ranking, p. 549. 

35 “Cato,” in Washington (D.C.) National Intelligencer, June 19, 1819. 

36 “Philo-Economicus,” in Richmond Enquirer, June 15, 1819. 


The Panic of 1 81 9 

denounced this innovation in banking as unjusdy discriminating in 
favor of banks as compared to ordinary debtors . 37 

In Virginia, a stronghold of financial conservatism, there was lit- 
tle agitation for, or consideration given to, plans for government to 
bolster or increase the supply of money. We have seen that Repre- 
sentative Miller, leader of the debtors’ relief forces in Virginia, took 
an a/z/z-bank position, as contrasted to the situation in other states. A 
typical Virginia attitude was expressed by a writer in the influential 
Richmond Enquirer. “Colbert” observed that all sorts of monetary 
and relief projects had been proposed, and that he was “alarmed at 
the idea of legislative interference in any form or shape.” Such gov- 
ernmental interference would, in the long run, aggravate rather than 
mitigate the evil. Paper money schemes could only cause loss of con- 
fidence by driving specie out of circulation. Furthermore, bankrupt- 
cies were eliminating the evils of rashness and avarice. And if the 
current increase in the value of money were allowed to continue 
unhampered, specie would return to circulation. At this point, just 
when the evil paper system was being liquidated through bankrupt- 
cies, there were proposals urging Congress or the states to issue large 
amounts of treasury notes, benefiting only the speculator . 38 

The situation was more turbulent in Maryland. Maryland had 
been the scene of considerable expansion in banks and bank notes, 
and the Baltimore branch of the Bank of the United States was per- 
haps the most irresponsible of the branches, its officers engaging in 
lax practice and outright dishonesty. The practice of stockholders 
paying only the first installment of their nominal capital in specie, 
or the notes of specie paying banks, and the remainder in stock 
notes, was particularly prevalent in Maryland, notably in the coun- 
try banks outside Baltimore, as was the practice of heavy borrowing 
by directors . ,9 The panic, as a result, brought about a large number 
of failures of the country banks and what has been estimated as a 
reduction of one-third of the bank capital in the state. 

37 New York Daily Advertiser, June 12, 1819. 

38 “Colbert,” in Richmond Enquirer, November 6, 1819. 
~ ,9 Knox, A Histoiy of Ranking, p. 489. 

State Proposals and Actions for Monetary Expansion 


The legislature moved quickly to bolster the position of the 
banks. As in North Carolina, there was bitter criticism of the money 
brokers; and the legislature, in 1819, moved to require a license of 
$500 per annum for money brokers, in addition to a $20 thousand 
bond to establish the business. A milder requirement was soon sub- 
stituted, however, after the legislature reaped that this law was inef- 
fective against out-of-state brokers. More stringent was an 1819 law 
prohibiting the exchange of specie for Maryland bank notes at less 
than par value for the notes. The law — repealed after the crisis was 
over, in 1 823 — was always readily evaded, the penalty merely adding 
to the discount as compensation for the added risk. 40 The New 
York American aptly pointed out that the undervaluation of specie 
by this law would cause specie to be exported from the state and dis- 
courage its import. 41 In 1821, the legislature imposed a penalty for 
passing any note of a non-Maryland bank. 42 

There was considerable agitation for and against various expan- 
sionist proposals in Maryland. In the summer of 1819, three such 
widely scattered counties as Washington, in the north; Somerset, far 
down on the eastern shore; and Prince Georges, near the District of 
Columbia, were all the scenes of citizens’ meetings, petitioning for 
a special session of the legislature to permit suspensions of specie 
payment by the Maryland banks. The banks were to be allowed to 
continue in operation despite the suspension. 43 A Baltimore writer 
pointed to England as reason for abandoning slavish devotion to 
specie payment in an emergency. 44 “A Farmer of Prince Georges 
County,” in the influential Baltimore Federal Republican, called on all 

40 Ibid. Boston New England Palladium, March 2, 1819. 

41 New York American, March 6, 1819. 

42 Dewey, State Ranking, p. 66. 

43 Washington (D.C.) National Intelligencer, June 1, 1819. 

44 “A Citizen,” in the Baltimore Telegraph, reprinted in the Richmond 
Enquirer, June 1, 1819. 


The Panic of 1 81 9 

of the state to follow the example of the three counties. 45 To per- 
mit the banks to suspend specie payments would relieve the distress 
of the people. It was sufficient, the “Farmer” declared, for the 
banks to be able to pay specie for their notes at the expiration of 
their charters. Another writer, signing himself “Specie,” was quick 
to reply. 40 His letter is particularly interesting as being evidence that 
the agitation for suspension was not an overwhelming movement in 
the grass-roots. “Specie” was interested in defending Prince 
Georges County from any inference that its citizens were anxious 
for such a special session. The “Farmer,” he asserted, was probably 
a bank director; otherwise he was a propertied debtor wishing to 
evade payment of his just debts or to pay them in a spurious “rag” 
currency. Suspension of specie payment he denounced as improper, 
unjust, and absurd. The device, he admitted, might produce a “slight 
degree of temporary ease,” but in the end would eventually increase 
our depression and distress. The writer also declared that far from 
the citizens’ meeting of the county endorsing the proposal, the 
opposite was true. The meeting was called, he declared, by a few 
“discontented, meddling, unknown persons.” At the meeting, how- 
ever, the people were unanimously opposed. He also accused the 
“Farmer” of obtaining his cue from “Homo” (Thomas Law, the 
leading advocate of a federal inconvertible paper currency), whom 
he called a “notorious advocate ... of the rag system.” 47 Typical of 
the opposition to banks permitting suspension of specie payment 
was a public meeting at Elkton, in the extreme northeastern corner 
of the state. The meeting was held at the very beginning of the cri- 
sis, in the fall of 1818, and was given widespread publicity by the 
staunch hard-money Hezekiah Niles in Niles’ Register.^ 

Niles termed the meeting a gathering of “respectable” farmers, 
mechanics, and laborers of Cecil County. They resolved to refuse 

45 Baltimore Federal Republican, July 1, 1819. 

46 Ibid„ July 13, 1819. 

47 For a discussion of Thomas Law and his proposals, see Chapter IV. The 
charge was inaccurate, since Law primarily advocated a national governmental 
currency plan, rather than suspension of specie payment by private banks. 

48 Niles’ Weekly Register 15 (September 12, 1818): 33. 

State Proposals and Actions for Monetary Expansion 


the paper of non-specie paying banks and to receive no small- 
denomination notes. It was declared that refusal of the country’s 
banks to pay specie while continuing to pay large dividends to their 
stock-holders was a violation of their trust. 

The legislature did not act to permit suspensions of specie pay- 
ment. It did consider a proposal for a state loan office to increase 
the supply of money. A report of the proposal was given to the 
Maryland House by a prominent Federalist legislator, Representative 
Josiah F. Polk. 49 Polk supported a loan office on the grounds that 
the cause of the depression was reduction in the currency. The 
restoration of the supply of currency to its former amount would 
raise prices, but would not, as critics charged, hinder our exports. In 
fact, declared Polk, exports from the state would be greater in mone- 
tary value, although the quantity of goods sold might be diminished. 
Polk presumably believed that the demand for American exports 
was inelastic. The price rise would enable debtors to pay their debts 
on just terms equal to the terms they had originally contracted, and 
would also bring about more diligent cultivation of the soil. Polk’s 
support of a state loan office, however, was very cautious in prac- 
tice, since he advocated a paper currency redeemable in specie, with 
heavy specie reserve. 

The Delaware legislature, as we have seen, rejected pleas for 
debtors’ relief legislation, but it did permit banks to suspend specie 
payments during the panic and continue operations. The citizens of 
New Castle County, who were in the forefront of pleas for debtors’ 
relief, also led in asking for monetary expansion. Their proposal, 
signed by 139 citizens, suggested that the Farmers Bank of 
Delaware and the Commercial Bank of Delaware be granted 
renewal of their charters with the proviso that they extend all of the 
loans to their present debtors for three and one half years. 50 This 
plan was never considered by the legislature. 

49 Maryland General Assembly, Official Journal of the Proceedings of the House of 
Representatives, 1820-21 (February 15, 1821): 109-10. 

50 Delaware General Assembly, Journal of the House of Representatives, 1819 
(January 26, 1819): 91. 


The Panic of 1 81 9 

In the next session, however, the House Committee on Banks 
recommended a new system of banking in the state. 51 Under this 
plan, the private banks were to merge in one central bank, with 
branches throughout the state. The capital of the new bank would 
consist partially of the existing capital of the private banks and 
pardy of new capital to be subscribed mainly by the state itself. This 
proposal would extend banking capital by state action, but did not 
involve the issue of inconvertible state paper. The proposal was 
amended in committee to be a planned merger of three private 
banks into the fourth — the Farmers’ Bank of Delaware — with 
some capital added by the state. In the amended plan, the additional 
capital was scaled down from $500 thousand to $200 thousand, 
compared to the existing nominal bank capital of $1.1 million. The 
bill passed by a vote of 11 to 8 in the House, but the Senate refused 
to concur. 

Delaware did, however, pass a law in 1 820 similar to Maryland’s, 
making it illegal for any person to exchange any bank note for less 
than its par value. 32 Ironically, as passed by the House, this bill was 
originally designed to abolish the circulation of notes of non-specie 
paying banks by closing down banks whose notes were not at par in 
Philadelphia. The Senate reversed the intent by shifting the onus for 
depreciation on the noteholders rather than on the banks. 

In New Jersey, serious consideration was given to a state loan to 
persons in need, mainly debtors, upon security presented for repay- 
ment. This borderline measure — between monetary expansion and 
direct debtors’ relief — was rejected in the same Hopkinson Report 
which ended the possibility of a stay law in the state. 53 Hopkinson 
objected that the “state has no money to lend.” Only a very large 
sum, say half a million, could appreciably affect the situation, and 

51 Ibid., 1820 (January 18, 20, 28; February 1, 2, 1820): 58ff, 73ff, 128ff, 

52 Ibid. (February 8, 11, 1820), pp. 169, 196. 

53 New Jersey Legislature, Votes and Proceedings of the General Assembly, 1819—20 
(June 2, 1820), pp. 202—05. 

State Proposals and Actions for Monetary Expansion 


this could only be obtained through borrowing. Yet, heavy taxes 
would be required to pay the annual interest. Furthermore, there 
would be a social loss of the interest earnings, during the time that 
must elapse between the state’s borrowing and its reloaning to 
debtors, and, in addition, there would be losses due to expenses of 
distribution and expenses of recovery. Furthermore, how could the 
neediest give the required security? Even more fundamental was 
Hopkins on’s objection that the loan to needy debtors would only be 
temporary; the debtor would simply change his creditor, and the time 
of debt would be extended. Addition to state debt and taxes, he 
declared, was no cure for the depression; the only remedies were 
industry, economy, and a favorable change in the European situation. 

New York opinion was highly critical of all inconvertible paper 
schemes. Typical was an editorial in the New York Evening Post 
declaring that at least there would be no suspensions of specie pay- 
ments in New York City. The attempt to raise prices by increasing 
the circulating medium would only make the same quantity of pro- 
duce pass for a greater nominal amount in paper . 54 

Financially conservative New England also remained generally 
free of controversies over monetary expansion proposals . 55 It was 
necessary for the joint Committee on Banks of the Massachusetts 
legislature, however, to consider and turn down proposals to pre- 
vent circulation of bank notes in the state at a discount. It curtly 
declared that the exchange value of notes must be regulated by the 
community itself, according to public wants and needs . 56 

In Vermont, the desire for increased money supply took the form 
of advocating charters for several new banks, and the battle over 
these charters raged furiously. Leader in the fight for the new banks 
was the wealthy, influential Cornelius Peter Van Ness . 5 Particularly 

54 New York Evening Post, June 15, 1819. 

55 Banks were generally solvent in New Hampshire, Connecticut, and 
Massachusetts, particularly in Boston. Cf. Sumner, Historj of Banking, p. 112. 
56 Boston New England Palladium, July 4, 1820. 

57 T.D. Seymour Bassett, “The Rise of Cornelius Peter Van Ness, 
1782-1826,” Proceedings of the Vermont Historical Society 10 (March 1942): 8-16. 


The Panic of 1 81 9 

controversial was a proposed new Bank of Burlington — the leading 
town in northwest Vermont. The bill was heavily favored by citizens 
of this area, which was a Federalist stronghold in the state. Van Ness 
piloted the bill through the General Assembly, passing the House in 
November, 1818 by a vote of 97 to 81. 58 Even so, many restrictions 
were imposed on the new bank. There was a penalty of 12 percent 
interest and forfeiture of the charter for suspending specie payment. 
Furthermore, the note issue was to be limited to the amount of 
specie plus three times the paid-in capital, and there were provisions 
for strict supervision. Even so, Governor Jonas Galusha vetoed the 
bill, and the veto was sustained. 59 By a slim margin, the House 
refused to charter a new bank in Windham County, and five other 
proposed banks were rejected or refused consideration. In fact, in 
the three years of agitation from 1818—21, only one bank was char- 
tered, the Bank of Brattleboro, and that over heavy opposition. 

A clue to the determined opposition to new bank charters lies in 
the annual message of Governor Galusha to the state legislature, in 
the fall of 1819. 611 Galusha pointed to the general distress, the 
scarcity of circulating medium, and the inability of debtors to pay 
their debts. He reasoned that the cause of this distress was the mul- 
tiplicity of banks, and that therefore adding new banks would merely 
aggravate the problem. Observing the various states, he declared: 

In those states where die banks are the most numerous 
and the means of credit the most easy, die recent cry of 
scarcity of medium, and its consequent distresses, have 
been the most heard and felt. 

Pennsylvania was hit heavily by the crisis and was particularly 
noted for extensive investigations by its legislature into the extent of, 

58 Van Ness was scheduled to become chairman of the board of the new 

59 Vermont General Assembly Journal of the House, 181 8— 19 (November 3, 
November 7): 127f£, 150ff. The Governor had previously vetoed a less strin- 
gent charter for the bank. 

60vermont General Assembly Journal of the House, 1819-20 (October 15, 
1819): 11-12. 

State Proposals and Actions for Monetary Expansion 


and the possible remedies for, the depression. Most notable was the 
special committee headed by State Senator Condy Raguet of 
Philadelphia. Raguet received reports of widespread depression 
throughout the state. After studying written testimony, sheriff’s 
records, petitions, and answers to committee questionnaires by 
members of the legislature, Raguet concluded that the economic dis- 
tress was unprecedented. The distress took the following forms: 
ruinous sacrifices of landed property at sheriff’s sales for debt; 
forced sales of merchandise; bankruptcies in agriculture, trade, and 
manufacturing; a general scarcity of money, making it almost impos- 
sible to borrow; a general “suspension of labor”; general stagnation 
of business; suspension of manufactures, and unemployment. 

Raguet tended to be conservative in his economic views. His 
committee report brusquely rejected any direct debtors’ relief or 
stay law legislation. On the other hand, Raguet advocated a State 
Loan Office to lend paper money to distressed debtors. He sug- 
gested that the state form a $1.5 million loan office to lend to the 
largest possible number of sufferers, particularly farmers and man- 
ufacturers, on landed security. The loans would be at long term 
(from five to ten years) and the attempt would be made to exclude 
speculators. Raguet declared that in this crisis the paternal care of 
the government was necessary. Not all individuals could be saved, 
but many unfortunate farmers and debtors could be greatly relieved. 
Although the details of the plan were never clarified, it appears that, 
unlike the loan office plans in the western states, this proposal did 
not involve inconvertible state paper but rather the borrowing of 
money from the public and relending it to debtors. Raguet declared 
that such a scheme would diffuse capital and greatly benefit the 
community. Money would be more plentiful, for 

tire plenty or scarcity of money depend no less upon the 
rapidity or slowness of circulation, and upon the expan- 
sion or contraction of confidence, than upon its absolute 
quantity. 61 

61 The Raguet Report is found in Pennsylvania Legislature, Journal of the Sen- 
ate, 1819—20 (January 29, 1820): 221-36, and the documentary appendix to the 
report is to be found in ibid. (February 14, 1820): 311-37. 


The Panic of 1 81 9 

The greater the turnover of money, the more debts it could cancel. 

A loan office for Pennsylvania had originally been suggested the 
month before by Governor William Findlay, in his annual message 
to the legislature . 62 Findlay suggested a state loan office fund, to 
draw money away “from comparative inactivity” to be loaned on 
landed security. This would help to check the sacrifices of property 
and would also “aid in giving new life and activity to numerous pur- 
suits of productive industry, and facilitate the progress of restora- 
tion from the embarrassments.” Thus, the government would coop- 
erate in providing the citizens with relief. 

Despite the initial impetus to the loan office proposal by the 
State Administration and the support of such an influential legisla- 
tor as Raguet, the proposal met with powerful opposition. One of 
the most influential newspapers in the state was the Philadelphia 
Aurora, traditionally the organ of ultra-Jeffersonianism. Its editor, 
William Duane, was a staunch conservative on monetary matters 
and was in bitter political opposition to the Findlay administration. 6 ’ 
In the House, Duane, a representative from Philadelphia, was 
named chairman of the Special Committee on the General State of 
the Domestic Economy . 64 In his report, Duane also stressed the 
widespread extent of the distress in all economic occupations 
throughout the state. Rejecting debtors’ relief proposals as did 
Raguet, Duane also firmly rejected a state loan office. He declared 
that such proposals had always aggravated rather than removed the 
depression. Furthermore, pointed out Duane, lending only on 
landed security would be unjust and would discriminate against 
those who did not own landed property. Those in most distress 
were the speculators who had little land to pledge in security. But 

^Pennsylvania Legislature, Journal of the House, 1819—20 (December 10, 
1819): 20-28. Also Philip S. Klein, Pennsylvania Politics, 1817—32 (Philadelphia: 
Historical Society of Pennsylvania, 1940), p. 98. 

63 Duane was particularly bitter over the leading role played by Findlay, as 
State Treasurer in 1814, in pushing through a mass chartering of 42 banks 
over the veto of Governor Simon Snyder. 

^Pennsylvania Legislature, Journal of the House, 1819—20 (January 28, 1820): 

State Proposals and Actions for Monetary Expansion 


more important, a loan office would extend the very evils of “ficti- 
tious capital” largely responsible for the depression, would give false 
new hope to debtors, and would delay the vital restoration of 
domestic thrift. Also, Duane was highly critical on political grounds, 
fearing that a large class of debtors to the state would always man- 
age to avoid repayment of their loan. Thus, the public debt would 
increase with no corresponding increase of capital. 

Duane’s report aroused a storm of controversy in the House. 
Leading the angry opposition was Representative Henry Jarrett, 
from rural Northampton County in eastern Pennsylvania, jarrett, a 
minority member of the committee, who had originally called for the 
committee investigation to establish a loan office, objected that the 
Duane report opposed all the petitions from his constituents. These 
constituents were in great distress and were demanding some relief. 65 
As a result, the House voted to prevent the official printing of the 
report; the vote was a narrow one, 49 to 40. Heaviest support for the 
Duane Report in the vote came from the city of Philadelphia, and 
from nearby Bucks and Chester Counties, all voting unanimously for 
printing. (Yet, in the previous session, citizens of Chester County 
had petitioned for a state-owned bank.) On the other hand, while 
rural York County, for example, voted heavily against printing, so did 
the representatives from Philadelphia County. 66 

Emboldened by this success, Representative Jarrett submitted, 
on February 1, a substitute report of his own on the pecuniary dis- 
tress. 67 Interestingly enough, in his analysis of the causes of the 
depression, Jarrett was as conservative as Raguet and Duane, in 
attributing it largely to excessive bank credit in the boom. But their 
agreement on causes did not prevent a sharp disagreement on reme- 
dies or on the specific question of a loan office. Essentially the con- 
troversy was whether now — in the depression — a dose of money 
and credit would considerably alleviate distress or would aggravate 

^Philadelphia Aurora, February 4, 1 820. 

^Pennsylvania Legislature, Journal of the House, 1818—19, p. 450. 
67 Ibid„ 1819-20 (February 1, 1820): 459-66. 


The Panic of 1 81 9 

matters by adding more of the alleged original poison leading to the 
present ills. To Jarrett there was no question that some relief to 
debtors was needed. At present, he declared, there was a great bur- 
den of unpaid debt, and this burden was causing loss of confidence 
by potential creditors and a consequent near prostration of all pri- 
vate credit. Jarrett conceded that the most important remedy was 
not new money but restoration of confidence. But he reasoned that 
if the government established a loan fund, granting loans on ample 
security, this would tend to re-establish confidence and credit in 
general. Furthermore, he visualHed a similar pump-priming effect 
as did Raguet. A dollar thus loaned would rapidly circulate, and tend 
to repay many times itself in outstanding debts. As Jarrett stated: 

An inconsiderable sum of money, for which the most 
ample security could be given, being loaned to a single 
individual in a neighborhood, by passing in quick suc- 
cession, would pay perhaps a hundred debts. 

Furthermore, the impetus to confidence and credit would “thereby 
bring into action additional sums that are now dormant, and give 
renewed impetus to industry.” Fie therefore called for a $1 million 
state loan office. 

Faced with this controversy, the House tabled the entire issue. 
Finally, a loan office bill, providing for $1 million — $2 million of 
state loans on landed security, failed to pass by the narrowest possi- 
ble margin — a tie vote. According to the well-informed National 
Intelligencer, much of the support for the loan office bill came from 
the “log-rolling” of those eager to advance a bill for the appropria- 
tion of state money for extensive internal improvements. 68 The loan 
office issue continued to be a lively one in the state, however. A year 
and a half later, the Philadelphia Union, a paper of Federalist lean- 
ings and a notable stronghold of conservatism on monetary mat- 
ters, warned that in Pennsylvania the “rage is for a loan office.” 6 

68 Washington (D.C.) National Intelligencer, March 25, 1820. See Appendix A 
on internal improvements as a suggested remedy for the depression. 

^Philadelphia Union, August 17, August 24, 1821. 

State Proposals and Actions for Monetary Expansion 


The loan office, it asserted, was being advanced as the sovereign 
panacea — for the payment of debts, to end speculation, to encour- 
age industry, and even to reorganize society. The Union declared that 
Pennsylvania had about fifty banks, five hundred brokers, and from 
five thousand to fifty thousand private lenders of money. Yet they 
were not willing to lend to all who would like to borrow, so a loan 
office was supposed to be necessary. Yet, since overextension of 
credit was the cause of the distress, the loan office would attempt 
to cure the evil “by forcing still further the causes to which they owe 
their existence . . . instead of looking for relief in the restriction of 
the credit system, we are to look for its extension.” 

The Union pointed particularly to the plan of a local newspaper 
in Paradise — in Lancaster County — a small town close to Philadel- 
phia. The Paradise editors advocated a $3 million— $5 million fund 
loaned for twenty years to distressed persons. Their argument was 
simply: why shouldn’t the legislature grant such relief “when it is in 
their power to do so?” The Union attack was directed at the losses 
that would accrue from unwise lending by government. Private 
lenders were willing to risk continued fluctuations in the value of 
money. With proper security, there were plenty of lenders available, 
and no forcing was required. If a man could not borrow privately, 
he was really bankrupt and could not put up the security envisioned 
in the loan office plan. In sum, the Union could only see in the plan 
a sacrifice of permanent prosperity for mere temporary relief. 

The Union added the argument that it was necessary for the cri- 
sis to run its course further, since there were still some basically 
unsound bank notes circulating in some of the counties. When the 
true value of the currency became evident, its total supply would 
contract even further. The paper also developed an interesting reply 
to the loan office claims of bolstering confidence. Lack of confi- 
dence and idle capital, it stated, were due not to purely psychologi- 
cal factors but to the simple fact that there was no good security 
available. Furthermore, as the state would borrow its sums in bank 
paper the circulation of the banks would increase, and their issues 
extended. Eventually, the process of cessation of monetary expan- 
sion, calling in of loans, and contraction, would be set in motion 


The Panic of 1 81 9 

again. Countering the argument of beneficial increase in velocity of 
circulation, the Union declared that increased velocity would only 
lead to further depreciation of the already unsound currency. 7 " 

The West was the major center of state monetary expansion. Yet, 
Ohio, very hard hit by the panic and in great monetary difficulties, 
was very spare with such legislation. It directed its attention instead to 
its famous conflict with the Bank of the United States, which came 
to a head during this period. Ohio, a thinly populated state, had expe- 
rienced a great boom in the postwar years, and contained twenty-four 
banks by the beginning of the crisis. Heavily in debt, much of Cincin- 
nati was foreclosed during the crisis by the branch of the United 
States Bank. By 1819, only six or seven of the state’s banks were 
redeeming their notes, the others struggling to continue with their 
notes greatly depreciated. 71 The scarcity of money led to barter in 
many interior areas. Yet, Ohio did not seriously consider a state bank 
or loan office plan. Governor Thomas Worthington, in his message 
to the legislature in December 1818, did propose a state bank because 
of the disordered state of paper currency and the difficulty in col- 
lecting taxes, but nothing came of this suggestion. 72 A bill to this 
effect was introduced in the Senate, but never came to a vote. Gov- 
ernor Ethan Allen Brown, however, in the next annual message, 
abjured all such remedies for the crisis. 7 ’ He added that there must be 

70 For a warning about loan office agitation as late as the end of 1821, see 
“Adam Lock,” in Philadelphia Union, December 11, 1821. For early opposition 
to any government loans, see “A,” in the Philadelphia United States Gazette, 
December 22, 1818. The Gazette was predecessor of the Union. 

71 For the Ohio situation, see especially Fluntington, History, pp. 255—351. 
Also Sumner, History of Ranking, p. 152; Greene, “Thoughts on the Present,” 
pp. 121-22; Rowe, “Money and Banks,” pp. 74-84; Goss, Cincinnati, 
pp. 139 — 43. 

72 Worthington was a country gentleman and leading political figure in the 
state, a former Senator and leader of the “Chillicothe Junta.” He suffered 
financial reverses in the depression of 1819. Ohio Legislature, Journal of the 
Senate, 1 81 8-19, p. 222. 

73 Brown was a wealthy landowner and former judge. Ohio Legislature, 
journal of the House, 1819—20 (December 7, 1819): 9-15. 

State Proposals and Actions for Monetary Expansion 


further contractions of bank notes rather than an expansion. Brown 
continued in this position throughout the depression, reaffirming, in 
December, 1821, his opposition to any system of bank and paper 
credit as remedy for the distress. The one Ohio act to bolster the 
money supply was, in February, 1819, to prohibit buying or selling of 
bank notes below their par in specie. This futile attempt to halt the 
depreciation of bank notes was not enforced and was finally repealed 
in January of the following year. 74 

Most of the banks in Ohio failed during the depression, but, as 
we have seen, the legislature tried to maintain their notes at par, 
despite their suspension of specie payments. In December 1819, a 
committee of citizens of Cincinnati issued a report backing the sus- 
pension of the banks and urging continued circulation of the 
notes. 75 The report absolved the banks from all blame for their 
plight and attributed the distress to the contractionist pressure of 
the United States Bank, much hated in many states for similar rea- 
sons, and to the machinations of eastern money brokers. These 
expressions of confidence, however, did not keep the bulk of the 
banks from failure. It is interesting that this point of view was not 
seconded by the Cincinnati Gazette itself, which blamed the banks 
for unwarranted extensions of their credit and even noted that the 
United States Bank had been extremely patient with the banks’ fail- 
ure to redeem in specie. 

The neighboring state of Indiana suffered severely from the 
depression. The state’s major money-making export — grain to New 
Orleans — declined gready in value. Land values plummeted, and 
some formerly flourishing towns became uninhabited. 76 As a result, 
half of the state taxes were in arrears, and the Indiana legislature 

^Philadelphia Union, March 5, 1819; Huntington, Histoty, pp. 295—97; R. 
Carlyle Buley, The Old Northwest, Pioneer Period, 1815—40 (Indianapolis: Indiana 
Historical Society, 1950), vol. 1, p. 586. 

75 In the Cincinnati Gazette, reprinted in Detroit Gazette, December 11, 1819. 

76 Mitchell, “Indiana’s Growth,” pp. 384-85; Esarey, Histoiy, p. 280; 
Nathan Ewing, President of the Bank of Vincennes, to Secretary Crawford, 
January 9, 1819, in U.S. Congress, American State Papers: Finance 3, no. 637 (Feb- 
ruary 14, 1822): 734. 


The Panic of 1 81 9 

petitioned Congress not to prosecute its citizens for non-payment 
of federal taxes. 

The banking situation in the state was unique. The Indiana Con- 
stitution of 1816 had prohibited any further incorporation of 
banks, except for a possible state bank, which would require a min- 
imum specie subscription of $30 thousand. 77 This provision effec- 
tively confined chartered banking in the state to the two banks 
established two years before, the Bank of Vincennes and the Farm- 
ers’ bank of Indiana at Madison. In January 1817, Indiana adopted 
the Bank of Vincennes as a state bank, and its authorized capital 
was tripled to $1.5 million with the state contributing $375 thousand 
of the increase. 

By the fall of 1818, the Farmers’ Bank at Madison, under pres- 
sure by the United States Bank and others, suspended specie pay- 
ment and wound up its operations by 1820. 78 Meanwhile, the 
grandiose plans for a state bank at Vincennes, with fourteen 
branches throughout the system, could not be consummated. Most 
of the leading politicians of the state were stockholders of the state 
bank and the state itself subscribed heavily. With only seventy-five 
thousand people — almost all farmers — in the state, and a scarcely 
developed capital market, such a large bank could hardly be floated. 
The state had therefore no success with an attempted sale of over 
$2 million in bank stock. Only three branches were finally organ- 
ized. The bank participated heavily in the boom and received the 
benefit of federal deposit in the state; but it suspended specie pay- 
ments during the crisis, and the federal government removed its 
deposits in July, 1820. 

Indiana, in the monetary sphere, thus differed from most other 
states. While elsewhere people could call for a state bank as a rem- 
edy for the crisis, the people of Indiana had already had a state bank 
and were disgruntled with its record. In Indiana, state banking was 

77 Dunn, Indiana, pp. 322ff. 

78 Logan Esarey, State Hanking in Indiana (Bloomington: Indiana University 
Press, 1912), pp. 221ff.; idem, “The First Indiana Banks,” Indiana Quarterly 
Magazine of History 6 (December 1910): 144—58. 

State Proposals and Actions for Monetary Expansion 


on the defensive rather than the offensive. Among the leading 
opponents were the large numbers of incoming setders from other 
states. These setders exchanged their specie and Bank of United 
States notes for state bank notes at the frontier, only to find their 
value gready depreciated at the next town. A meeting denounced 
the banking system of the state as injurious, fraudulent, and dan- 
gerous, and decried its political influence. The members vowed not 
to support any bank director for public office. 79 Leader of the 
opposition to the bank was Elihu Stout, editor of the Vincennes 
Western Sun in Indiana’s leading town. Born in New Jersey, Stout had 
worked for years in Kentucky and in Nashville, and there had 
become a personal friend of Andrew Jackson. The leading force on 
behalf of the state bank was the Vincennes Sentinel, the editor of 
which was an officer of the bank. The “aristocrats” of the Vin- 
cennes area, such as United States Senator James Noble, Jonathan 
Jennings, and William Hendricks, supported the bank. 80 The oppo- 
nents were later to be leaders of the “Jacksonian Democrats” in the 
state. The opposition pointed to the heavy loans to directors and to 
leading political figures. It grew more and more exercised because 
the state continued to accept the unredeemable notes of the bank, 
notes that continued to be issued in defiance of the bank’s charter. 
The opposition also pointed out that the state’s receiver of public 
dues was an officer of the bank. Further, the state, in 1819, 
deposited $10 thousand of irredeemable bank notes. This was done 
at a time when the state was short of specie to pay its own officers. 81 
In late 1818, the legislature had all but unanimously decreed a stay 
of execution for one year should creditors refuse to accept at par 

79 Washington (D.C.) National Intelligencer, June 19, 1819. 

80 Noble was a member of one of the most eminent families in Indiana. 
He was a director of the Vincennes Bank and the new state bank. Jennings 
was President of the Indiana Constitutional Convention, its first Governor, 
and later Representative in Congress. Hendricks was a Congressman and sec- 
retary of the Indiana Constitutional Convention — later to be Governor and 
Senator. In later years, he followed Jackson, but even so upheld the United 
States Bank. Esarey, State Ranking, p. 229. 

81 Esarey, “The First Indiana Banks,” p. 149. 


The Panic of 1 81 9 

the paper of those banks of the state, whose “money was current 
with the markets.” 82 Finally, the opposition, headed by General 
Samuel Mulroy, introduced in July, 1820, a resolution in the legisla- 
ture to investigate the state bank. The resolution failed. 

The opposition was particularly angry because the bank was 
obligated by its charter to pay specie, yet was continuing operations 
while refusing to redeem. Representative John H. Thompson 
moved a bill to require the state bank to pay in specie or forfeit its 
charter, but the bill was defeated. Leader of the pro-bank forces was 
Representative Thomas H. Blake of Knox County, the county 
which included Vincennes. Blake’s major arguments were the 
dependence of governmental salaries on the notes of the state bank 
and the assertion that no western banks were paying specie. The 
state election of 1820 was waged on the bank question. The issue 
was whether or not the state bank should be compelled to redeem 
its notes in specie. The voters chose overwhelmingly in the affirma- 
tive, and there was a heavy turnover of members of the legislature, 
even in areas that were formerly strongholds of the bank. 

Actually the bank was on the edge of bankruptcy, and had been 
subject to considerable embezzlement by its officers. The election 
forced its demise. The bank suspended operations on January 2, 
1821, and was forced to end its affairs completely by the following 
year. 8 ’ Richard Damil, at a banquet in honor of General William 
Henry Harrison, at Vincennes, toasted its demise: “The State Bank 
of Indiana; more corruption than money.” 84 

Although the commerce of the neighboring frontier state of Illi- 
nois was hardly developed, it chartered four private banks in the 
postwar years, two of which loaned heavily for public land specula- 
tion. The Bank of Illinois, at Shawneetown, was a particular favorite 
of the state government. As early as the beginning of 1817, Illinois 
had passed a stay law, postponing all executions for one year unless 
the creditor agreed to accept the notes of that bank and of several 

82 Mitchell, “Indiana’s Growth,” p. 389; Buley, Old Northwest, p. 598. 
83 Dunn, Indiana, p. 328. 

84 Esarey, “The First Indiana Banks,” p. 154. 

State Proposals and Actions for Monetary Expansion 


other banks in surrounding states. When the crisis came, the banks 
began to fail. There was a mass of unpaid debts, and Illinois note- 
holders suffered from the wave of bank failures in Ohio, Kentucky, 
and Missouri, the notes of which also circulated in Illinois. The 
Bank of Illinois failed by 1 823, and another leading bank, the Bank 
of Edwardsville, which had begun business in the fall of 1818, 
failed in 1821. 85 The other two banks — the Bank of Kaskaskia and 
the Bank of Cairo — never began operations. 86 

Illinois was thus confronted not only with a heavy debt burden 
but with failure by its own and neighboring private banks. Further- 
more, the Illinois State Constitution, ratified in 1818, provided that 
no further banks be chartered in Illinois except a state-owned bank. 
The route seemed paved for a state-owned bank to come to the res- 
cue. The first step of the legislature was to establish a specie paying 
bank. 87 In the spring of 1819, it chartered the State Bank of Illinois, 
to be half owned by the state, half by private individuals. Autho- 
rized capital was to be the huge amount of $2 million from private 
sources, plus $2 million from the state, with the state to choose half 
of the directors. The bank was to have ten branches. Ten percent of 
the stock would be paid for directly in specie or specie paying bank 
notes, with a 12 percent interest penalty for any failure to redeem 
the bank’s notes in specie on demand. Not only was this capital not 
forthcoming but the new bank could not even attract the $15 thou- 
sand in specie capital legally necessary to begin operations. Even a 
supplementary act declaring state warrants the equivalent of specie 
could not attract the needed capital. As a result, the bank never 
began operations, and the charter was rescinded in 1821. 

Meanwhile, the fall in prices of land and other property, and the 
bank failures and contraction of the money supply, added to the dis- 
tress and to the burden of unpaid debts. A clamor began to arise for 
a wholly state-owned bank, which would not be hampered in its 

85 Dowrie, Development, pp. 9-14, 17-22. 

86 Garnett, State Banks, pp. Iff. 

87 Dowrie, Development, pp. 23-35; Garnett, State Banks, p. 8. 


The Panic of 1 81 9 

operations by any specie paying requirement. The agitation was led 
in the Illinois House in the 1819—20 session by Representatives 
Richard M. Young and William M. Alexander, both from Union 
County in the southwestern tip of Illinois. Union County citizens 
submitted a petition for the establishment of a new State Bank of 
Illinois to issue inconvertible paper. 88 After the defeat of an amend- 
ment to reduce the bank’s nominal capital, and to increase the pro- 
portion of paid-in capital, the bill passed the House by the narrow- 
est of margins, fourteen to twelve. Two weeks later, an unusual 
protest was filed in the House against the bank bill by four Repre- 
sentatives: Wickliff Kitchell and Abraham Cairnes from Crawford 
County, Raphael Widen of Randolph County, and Samuel McClin- 
toc of Gallatin County. 89 These counties are in widely scattered 
areas of the state: Crawford in the East; Randolph in the West; and 
Gallatin, a more populous county, in the Southeast containing the 
town of Shawneetown. The protest assailed the bank bill as uncon- 
stitutional. But, in addition, it assailed all banks — even those 
redeeming in specie — as dangerous, and as creators of false and fic- 
titious habits, corrupting morals by providing “quick and easy 
access to every luxury and vice.” The proposed state bank, without 
one cent of specie capital, was far worse. For it was clear that its 
credit had to depreciate, thus deceiving those who would accept its 
notes. The paper bank would inject “a false and fictitious currency, 
which has no intrinsic value, which must depreciate” like the old 
Continentals. The second economic argument was that the general 
embarrassments were due to bank credit expansion, and therefore 
that the bank would also aggravate the depression as well. 

Citizens’ meetings in the previously mentioned counties 
protested against the bill, as did citizens of Bond County, a small 
county in western Illinois. The Bond County resolution met the 
relief problem squarely. It stated that the legitimate object of banks 
was to afford a convenient medium for granting credits on solid 

88 On the petition and the introduction of the bill, see Illinois General 
Assembly, House Journal, 1820—21 (January 13, 1821): 157-58. 

89 Ibid. (January 29, 1821), pp. 227-29; Buley, Old Northivest, pp. 599ff. 

State Proposals and Actions for Monetary Expansion 


capital, and that they were not suited for projects to create funds for 
needy individuals . 90 It warned against depreciation of the new bank 
notes. On the other hand, a citizens’ meeting in adjacent Madison 
County, containing the important town of Edwardsville, supported 
the new bank as an expression of the state’s duty to afford relief. 
Support for relief was also given by the Edwardsville Spectator, 
Edwardsville’s influential newspaper. 

Passing both Houses by a very close margin, the bill was vetoed 
by the Council of Revision, which consisted of Governor Shadrach 
Bond, who had opposed such a bank in his opening message, and 
the judges of the State Supreme Court . 91 The Council vetoed the 
bill unanimously, on the grounds of unconstitutionality, and issued 
a prediction that the bank notes would depreciate, and thus be an 
unsatisfactory medium, especially for interstate purchases . 92 

The House lost no time in countering the veto message. It referred 
the bill to a select committee, weighted with supporters of the bank, 
and the committee recommended overriding the veto in its report a 
few days later . 93 The committee report, in addition to defending the 
constitutionality of the proposal, admitted that the bank paper might 
not be received outside the state, but hailed this development as ben- 
eficial. “If other states did refuse to receive Illinois paper, the citizens 
of Illinois would have more for their own use.” Despite the fact that 
Speaker John McLean, from Gallatin County, temporarily resigned his 
chair in order to combat the bill, the House overrode the veto (only a 
simple majority being needed) by seventeen to ten, a far greater mar- 
gin than before. The Senate also overrode the veto, and the new State 
Bank of Illinois was established . 94 

"Dowrie, Development, p. 24. 

91 Bond was a prosperous farmer, and former judge. 

92 Ulinois General Assembly, Douse Journal, 1820—21 (January 30, 1821): 236. 
93 Ibid. (February 2, 1821): 261-71. 

94 One of the supporters of the bill in the Senate was immediately 
appointed a cashier of the bank. 


The Panic of 1 81 9 

The state bank was installed at Vandalia, in middle Illinois, with 
five branches, and a total nominal capital of $500 thousand. The 
only specie capital was $2 thousand from the State Treasury to pay 
for the cost of printing an issue of $300 thousand in inconvertible 
notes. The notes were distributed to the branches in the various dis- 
tricts with instructions to lend as fast as applications came in, in pro- 
portion to the number of inhabitants in each district. They were 
declared receivable in all debts due either to the bank or to the state. 
Loans above $100 were securable by mortgage on real estate and by 
personal security for loans under $100. The maximum loan to any 
one person was $1,000. The rate of interest was 6 percent, and the 
loans were renewable annually, with the payment of 10 percent of 
the principal — the bank was envisioned as operating for ten years. 
The bank notes were backed by a stay law, delaying all executions for 
three years unless the creditor agreed to receive the state bank notes. 
Thus, the state did its best to place the notes on as close to a legal 
tender basis as constitutionally seemed possible. All the funds of the 
State Treasury were, of course, deposited in the bank. 

The bank lost no time in issuing and lending the notes. There 
was litde concern about security or chance of repayment; in prac- 
tice, anyone with an endorser could borrow $100. 95 The officers of 
the bank, political figures appointed by the legislature, borrowed up 
to the legal limit, and thus were not averse to depreciation of the 
notes, a depreciation which would lighten the burden of repayment. 
The notes began to depreciate immediately, and fell rapidly from 70 
percent, to 50 percent, and 25 percent and finally ceased circulating 
by 1823. In January 1823, with the notes rapidly losing value, the 
House overwhelmingly rejected the option of issuing an additional 
$200 thousand. 96 No notes beyond the $300 thousand were ever 
issued, and the bank closed in 1824. Very few debtors ever repaid 
the loan; there was no prosecution for failure to pay. Specie, of 
course, was completely driven from circulation by the quasi-legal 
tender bills, while they continued in operation. 

95 Garnett, State Banks, pp. 9-12; and Dowrie, Development, pp. 26-28. 
96 Dowrie, Development, p. 35. 

State Proposals and Actions for Monetary Expansion 


Despite the argument of the House Committee, the legislature 
was alarmed at the depreciation. It was particularly chagrined at the 
refusal of the land offices of the United States Treasury to accept 
the notes, and it formally petitioned the Treasury, without success, 
to accept the new bank notes as equal to specie. While attempting 
to bolster the value of the bank notes, however, the legislature took 
the expedient if ironic step of authorizing issue of auditor’s war- 
rants by the state. These warrants exchanged on the market at three 
times the same nominal amount in bank notes. These warrants were 
specifically used to pay the salaries of state officials and of the 
members of the legislature, and arose from refusal of state officials 
to accept their salaries in the bank notes at their par value. 97 

In the frontier Michigan Territory, the territorial and local offi- 
cials issued paper money, or scrip. The Governor and judges first 
issued paper in 1819 in small-denomination bills, from two to 
twenty dollars. The paper bore interest at 6 percent and was to be 
redeemed out of the sale of certain public lands, but these lands had 
already sold at a much lower price. As a result, the paper passed at 
a 10 percent discount as early as 1820. Wayne County, the site of the 
town of Detroit, found its taxes largely in arrears in 1819 and 1820, 
and so the county commissioners issued paper money to be 
redeemed out of future taxes. No tax at all was levied in 1821, how- 
ever, and by March 1822, Wayne County was $3,000 in debt. As a 
result, the scrip depreciated at a 25 percent discount. 98 

Missouri, as noted previously, suffered from a burden of debt, 
particularly in land speculation. With the halving of migration during 
the depression and the general fall in prices, land value plummeted. 
The monetary situation intensified the difficulties. 99 Missouri’s first 
bank, the Bank of St. Louis, had opened at the end of 1816, and 

97 Davidson and Stuve, Complete History, p. 307; Knox, A Histoiy of Ranking, 
p. 716. 

98 See Floyd Russell Dain, Every House a Frontier (Detroit: Wayne University 
Press, 1956), p. 103. 

"Anderson, “Frontier Economic Problems, I,” pp. 60—62; Cable, Rank, 
pp. 52-70; Cable, “Some Early Missouri Bankers,” Missouri Historical Review 26 
(January 1932): 117-19; Dorsey, “Panic,” p. 83. 


The Panic of 1 81 9 

expanded credit heavily, particularly in real estate loans. Harassed by 
defaults of its debtors and the failure of other banks, the Bank of St. 
Louis failed in the summer of 1819. Much the same thing happened 
with the other major bank, the Bank of Missouri, which failed in 
1821. The monetary contraction and resulting distress was intensified 
by the failures of banks in neighboring states, many notes of which 
circulated in the state. With notes vanishing or becoming worthless 
and with specie having been previously drained to the East, a demand 
arose for the state to furnish needed currency. Typical of the rising 
agitation for a state bank or loan office to provide paper money was 
a letter to the St. Louis Enquirer in the spring of 1821. 1011 The letter 
pointed to the sudden creation and withdrawal of a large amount of 
currency that had taken place in Missouri in recent years. The writer 
estimated that the total paper circulation in Missouri had risen as a 
result of the boom — including bank notes of Missouri, Kentucky, 
Ohio, and the Carolinas — to $1 million. Now, in two years time, the 
total circulation remaining amounted to only $100 thousand. This 90 
percent contraction in the money supply, according to the writer, ben- 
efited the creditor tenfold, since the value of his credit had increased 
to that extent. The writer concluded that a state bank was needed for 
relief of the people. Many newspapers presented similar letters urg- 
ing a state bank. 101 

Representative Duff Green, soon to emerge as leader of the pro- 
relief and pro-loan office measures in the legislature, set the stage for 
a loan office, placing the responsibility for the “hard times” squarely 
on unemployment caused by a shortage of currency. 102 

Although the legislature had discussed a loan office in the regu- 
lar 1820—21 session, nothing had been done, but with the upsurge 
of interest in the spring of 1821, rumors of a special relief session 
of the legislature began to circulate. A special session was finally 

lOODorsey, “Panic,” p. 84. The letter was published in the St. Louis 
Enquirer, March 17, 1821. 

101 Hamilton, “Relief Movement,” pp. 58ff. 

l02Franklin Missouri Intelligencer, February 26, 1821, quoted in Hamilton, 
“Relief Movement,” p. 56. 

State Proposals and Actions for Monetary Expansion 


called for June 4, amid vigorous protests from anti-reliefers. Gover- 
nor Alexander McNair revealed the major purpose of the special 
session in his call for relief from the pecuniary troubles, and his 
submission of the relief proposals. The major bill submitted at this 
session was a loan office bill. Support was bolstered by the report 
of a legislative committee investigating the failure of the Bank of 
Missouri, which urged a new state currency; the committee esti- 
mated that the money supply had contracted to one- sixth of the 
1818 total. The opponents of the loan office bill liked neither an 
inconvertible currency based on the state’s credit, nor the two-year 
stay provision for those creditors who refused to accept the notes in 
payment. The stay section was therefore eliminated from the bill, 
although it passed as a separate bill the following January. The loan 
office bill, after spirited opposition, narrowly passed the House on 
June 21, by a margin of three votes. 103 

There was no discernible sectional division in Missouri on the 
loan office or relief measures, either in the legislature or among the 
public. Each territorial district of the state was closely divided on the 
issues. Leading the opposition was United States Senator Thomas 
Hart Benton, later to be dubbed “Old Bullion” because of his 
staunch advocacy of hard money at Jackson’s side. Benton declared 
that the only satisfactory money was metallic and urged the citizens 
to end the specie drain to the East themselves by shifting their cus- 
tom to a barter trade with New Orleans. Benton also suggested that 
the United States recognize the revolutionary Mexican government, 
in order to spur an influx of silver from Mexican mines. 104 

The loan office was established with four branch offices 
throughout the state. It aimed to provide an expanded circulating 
medium to relieve the shortage of money and to furnish loans, par- 
ticularly on land, for relief of the burdens of the debtors. The law 
authorized the issue of $200 thousand of inconvertible paper, in 
denominations from fifty cents to ten dollars. The state agreed to 

103 Missouri General Assembly, journal of the House of Representatives, 1st 
General Assembly, Special Session, 1821, pp. 74-77, 84-86. 
l° 4 Anderson, “Frontier Economic Problems, I,” pp. 65, 68. 


The Panic of 1 81 9 

receive the notes in payments of all taxes and other debts due, and 
to pay them out to its officers for salaries and fees. A large portion 
of the law was a description of how the public could obtain loans 
of the new notes on their land. Loans were to be for one year at 6 
percent interest, but the borrower had the right to renew the loan 
every year, and the state could not call in more than 10 percent of 
the principal every six months. However, the state was required to 
call in 10 percent of the notes annually. The loans were to be 
divided among the districts in proportion to their population. Max- 
ima to each borrower were $1,000 on real estate and $200 on per- 
sonal property, the landed property to be worth at least twice the 
amount of the loan. The similarity is obvious between this loan 
office act and the State Bank Law of Illinois earlier in the year. 

The leading issue of the legislative session of the fall of 1821 
was the loan office system. The expansionists and relief forces were 
eager to enlarge the scope of the loan office. The reliefers wanted 
strong stay laws, for their own sake and to give the notes a quasi- 
legal tender effect, and the battie over the stay legislation is recorded 
previously. They also suggested bills for expanding the loan office 
note issue, for longer loans, and for the use of the notes to finance 
internal improvements in the state. 

Many petitions arrived in the legislature to enlarge the note issue. 
The St. Louis Enquirer declared that the $200 thousand issue would 
not be enough. That amount, it asserted, was highly inadequate “to 
the great purpose in contemplation.” 1(15 Governor McNair, how- 
ever, was noncommittal and left the initiative to the legislature. On 
November 9, a bill was introduced authorizing the State Treasury to 
redeem its auditor’s warrants in the new notes. The bill passed the 
legislature, and the scope of the notes was enlarged. Not only were 
they now receivable by the state for taxes and used in paying its offi- 
cers, but it was now a means of paying the state’s debts. Further- 
more, since the State Treasury “Auditor’s warrants” could be 
exchanged for loan office certificates at par, they were now usable 

105 July 14, 1821. Hamilton, “Relief Movement,” p. 69. 

State Proposals and Actions for Monetary Expansion 


as money. To enable this backing, the law authorized a further $50 
thousand issue of loan office notes. 106 

Others wanted the state to furnish the capital to build factories 
and mills with loan office certificates. New wealth would thus be 
created, people would obtain new products, and prosperity would 
be restored. The expanded money supply was in this way conceived 
as a method of increasing the capital and productive activity of the 
country, as well as simply of relieving debtors. James Kennedy, 
George H. Kennedy, and Ruggles Whiting petitioned the legislature 
to lend them money to build a steam mill. Duff Green, leader of the 
relief forces, sponsored the project, which needed a special law, 
since the loan office was legally limited to a $1,000 loan for each 
person. Furthermore, the loan required landed property, whereas 
these men and others wished to engage in manufacturing activity. 
The legislature passed this special bill, lending the three men $10 
thousand in new loan office certificates. They used $10 thousand of 
the $50 thousand which had been previously set aside to redeem the 
auditor’s warrants. Emboldened by this move, the legislature also 
agreed to use the other $40 thousand in similar loans for internal 
improvements. Money to redeem the state’s warrants could wait on 
loan office receipts coming in from taxes. 

Now all the authorized new money was spent. The legislature 
passed another special act for the issuance of yet another $50 thou- 
sand in certificates and the loan of them to a Neziah Bliss for the 
establishment of an iron works, with mortgaged real estate as secu- 
rity. Governor McNair recommended that new issues of loan office 
paper be made and be given to each district for lending to enterpris- 
ers to erect such factories as they deem most beneficial to the people 
of the district. The legislature balked, however, at any further increase 
in note issues. McNair’s proposal was endorsed in resolutions by both 
houses, but no law was passed to enact it. Various other plans were 
offered for increases in note issue, but few came to a vote. The major 
bill in the House was Green’s proposal to emit another $300 thousand 

106 Missouri General Assembly, journal of the House of Representatives, 2d 
General Assembly, 1821, pp. 152-53. 


The Panic of 1 81 9 

in note issue, but the bill was defeated. A similar bill in the Senate lost 
by a two-to-one vote. The door was emphatically closed on further 
emissions in this session when the House declared any further issue 
inexpedient. Authorized issues had totaled $300 thousand. The major 
action of the session was stay laws bolstering the credit of the loan 
office notes. As in the case of the stay laws, the voting on the loan 
office bill revealed no sectional division, but rather a division of opin- 
ion within every area and county. 

As the loan office swung into action in the summer and fall of 
1821, the proponents were hopeful of success. Most of the papers in 
the state had supported the bill, and they declared that the need for 
more circulating medium had been met. The Missouri Intelligencer went 
to the extent of urging that specie be permanently replaced by the 
new paper. 1 " The same paper argued obscurely that these certificates 
would meet the need for currency within the state, while interstate 
debts could be met with farm produce, thus giving the farmer a bet- 
ter chance of marketing Inis produce. Opponents, led by the Jackson 
Independent Patriot, branded the law the work of sinister selfish groups, 
particularly speculators and bankrupt spendthrift debtors, who 
wanted to obtain large amounts of “rag money.” The opponents 
charged that the inconvertible paper would soon depreciate and drive 
“real” money from circulation. The advocates of the loan office 
retorted that the paper was soundly backed by the future resources of 
the state, by expected future revenues from taxes and land sales. 

By January, 1822, the loan office notes began to depreciate. The 
relief advocates met in January at St. Charles to discuss means to 
bolster the value of the certificates. To no avail, however. By March, 
the loan office notes had depreciated to such an extent as to have 
practically disappeared from circulation. Unreconstructed advocates 
asserted that the depreciation was due to deliberate attempts of 
merchants to force down the value for speculative purposes. 108 It is 
true that merchants generally refused to accept the notes, but it 

107 August 14, 1821, September 25, 1821; in Hamilton, “Relief Move- 
ment,” p. 77. 

108 Thus see Primm, Economic Policy, pp. 14, 17. 

State Proposals and Actions for Monetary Expansion 


seems evident that the reason was serious doubts on their present 
and future value. Some merchants took the notes only at a discount, 
others not at all. Several merchants in the town of Franklin banded 
together to announce a boycott of the loan office paper, attacking 
it as “calculated to injure us materially in our business.” One 
Thomas Willis, a barber of St. Louis, advertised in the press that he 
would not accept a loan office note “on any terms whatever.” 1119 

The extraordinary rapidity of the collapse of the notes was 
pardy due to unfavorable judicial decisions that spelled the writing 
on the wall for the loan office. The loan office law was declared 
unconstitutional by the courts in February and in July, 1822, and the 
stay laws were overthrown in the same period. In the course of his 
St. Louis Circuit Court decision in Missouri on February 18, 1822, 
declaring the loan office act unconstitutional, 110 Judge N. Beverly 
Tucker shed light on some of the reasons behind the loan office leg- 
islation. He declared that Kentucky’s inconvertible paper scheme 
had stimulated exports from there to Missouri, presumably because 
of low export prices resulting from depreciating Kentucky paper. 
Missouri, he declared, attempted a paper system to exclude Ken- 
tucky imports, a goal which was accomplished. 111 

The elections, as we have seen, were fought bitterly during 1821 
over the loan office and stay measures. The reliefers sought a con- 
stitutional amendment to eliminate judicial opposition, and charged 
that the judges were prejudiced against the notes because they were 
forced to receive them in salaries. Anti-reliefers called for repeal. 
The elections were won overwhelmingly by the anti-relief forces. 

Governor McNair followed the straws in the wind by not only 
calling for complete repeal, in his November 4 message to the legis- 
lature, but also by stating that the measures had proved unsuccessful 

109 Anderson, “Frontier Economic Problems, I,” p. 66. 

110 Missouri v. William Carr Lane. See Cable, Bank, p. 79. 

11 Mucker came from a very prominent Virginia family. He was a half- 
brother of John Randolph. He later returned to Virginia to become professor 
of law at William and Mary College and leading theoretician of the pro-slavery 


The Panic of 1 81 9 

in alleviating the financial distress. McNair concluded that the only 
effective method of relief was private “industry” and economy. 
Swiftly, the legislature acted to repeal the loan office law, acting after 
only $200 thousand had actually been issued. The problem of dis- 
posing of the existing notes remained. One proposal to fund the 
notes at half their nominal value was given scant consideration, and, 
in a law of December 16, the legislature decided that no renewals of 
loans would be made, and that all borrowers would be required to 
pay 10 percent of the principal to the state every six months until the 
debt was completed. The notes would no longer be received in pay- 
ment of dues by the state and would be destroyed as repaid. 

Banking became a matter of controversy in Tennessee as early as 
the years of the postwar boom. Many small banks were established 
in the small rural towns of the state, and these were supported in 
the rural areas. The press in the two big towns of Knoxville and 
Nashville, however, sharply criticized this development as dissipat- 
ing the capital that rightly belonged in the larger, commercial 
areas. 112 Most of these small banks were consolidated in 1818 into 
branches of one of the leading banks, the Nashville Bank. 

As insolvencies developed in the crisis, the banking affairs of the 
state became swiftly disordered. The Nashville Bank, the Farmers’ 
and Merchants’ Bank of Nashville, and the Bank of Tennessee 
(Nashville Branch), all had to suspend specie payments during June, 
1819. On June 21, the day before the Nashville Bank suspended, cit- 
izens of Nashville had recommended immediate suspension of 
specie payments by all banks of Tennessee. 11 ' 1 On June 23, the lead- 
ing bankers of Nashville met at the courthouse and passed an almost 
identical resolution, urging all the banks to suspend specie pay- 
ments — while continuing their operations. They insisted that while 
the banks should suspend specie payments the public should not 
allow such a step to “impair the credit” of bank paper. By July, every 
bank in mid-Tennessee had suspended specie payments, and the only 

112 Abernethy, “Early Development,” pp. 311-25. 

113 Hamer, Tennessee, pp. 231-32; Campbell, Development, pp. 43ff.; Beard, 
“joseph McMinn,” pp. 162ff.; Parks, “Felix Grundy,” p. 29. 

State Proposals and Actions for Monetary Expansion 


major bank continuing to redeem was the Knoxville branch of the 
Bank of Tennessee. The Nashville banks issued a statement to justify 
their suspension. They pointed to the increased demand on them for 
specie; to meet these calls they would have had to press their debtors 
and ruin them. The Bank of the United States was blamed for the 
destructive pressure, as were easterners who turned in Tennessee 
bank notes for redemption. Therefore, the bank’s suspension while 
continuing operations was really a humanitarian gesture to shield their 
debtors and to prevent specie from being drained from the state. 114 

While the banks quickly found themselves forced to suspend 
payment, the public was not so eager to maintain the credit of their 
notes. Creditors such as merchants Willie Barrow and Thomas 
Yeatman advertised in the press their unwillingness to accept bank 
notes in payment. 115 People turned to the legislature for debtors’ 
relief legislation and for methods of bolstering and expanding the 
money supply of the state. As has been stated, the leader of the 
relief forces, in both fields, was one of the dominant political fig- 
ures in the state: Felix Grundy, now newly elected Representative 
from central Davidson County (including Nashville) on a relief plat- 
form. In Grundy’s resolutions, presented to the legislature on Sep- 
tember 20, he stated that the “present deranged state of the cur- 
rency . . . requires the early and serious attention of the legislature.” 
His major concrete proposal at that time was a virtual legal tender 
law, aimed at bolstering the money supply and aiding debtors — a law 
to compel creditors to accept bank notes of the state or forfeit the 
debt. 110 Grundy’s bill staying executions for two years unless credi- 
tors accepted notes of state banks passed in the fall of 1819. 117 

114 Hamer, Tennessee, pp. 232ff. 

11 ’’Parks, “Felix Grundy.” Yeatman, reputed to be the wealthiest merchant 
in Tennessee, was the son-in-law of Andrew Ervin, and was soon to establish 
his own private, unchartered bank. Sellers, “Banking.” 

116 Parks, “Felix Grundy,” p. 22; Tennessee General Assembly, Journal of the 
House of Representatives, 1 819 (September 20, 1819): 22. 

^'Tennessee General Assembly, Journal of theHouse of Representatives, 1819, 
p. 245. 


The Panic of 1 81 9 

East Tennessee was generally a more rural, less commercial area 
than the central region, but its main distinction was the relative 
absence of cotton and slave plantations, as compared to mid-Ten- 
nessee. East Tennesseans considered the suspension of specie pay- 
ments by the banks, while continuing in operation, as a plan to 
evade meeting the banks’ just obligations. There was also a great 
deal of opposition to the bank suspension in mid-Tennessee. Citi- 
zens of Warren County, in that area, petitioned the legislature that 
banks be placed upon a “constitutional equality with the citizens” in 
paying their debts, by compelling the banks to redeem their notes in 
specie as promised. Henry H. Bryan, running for Congress from 
mid-Tennessee, declared in a campaign circular that 

banking in all its forms, in every disguise is a rank fraud 
upon the laboring and industrious part of society; it is in 
truth a scheme, whereby in a silent and secret manner, to 
make idleness productive and filch from industry, the 
hard produce of its earnings. 118 

During 1 820, the crisis continued to intensify; prices of produce 
fell, sheriff’s sales increased, and the bank notes, not redeemable in 
specie, continued to depreciate despite the stay law and the exhor- 
tations of the bankers. The cry began to spread that the great evil 
of the times was the continuing diminution of the currency. David- 
son County, especially Nashville, was the center of the agitation. 
These advocates also began to criticize the banks bitterly for con- 
tinuing to call on their debtors for payment. The legislature began 
to be considered the source from which new money should be pro- 
duced. In the late spring and early summer of 1820, the chorus 
swelled for a special session of the legislature to supply an increased 
circulating medium. Typical of the agitation for increased currency 
at a special session was a petition from citizens of Williamson 
County, adjacent to Davidson. 119 It declared that the banks were 

118 From Nashville Whig, July 3, 1819. Quoted in Sellers, “Banking,” p. 70. 

119 Nashville Clarion, May 2, 1820, in Parks, “Felix Grundy,” p. 27. See 
above on charges and countercharges by the supporters and opponents of a 
special session. 

State Proposals and Actions for Monetary Expansion 


contracting credit rather than affording relief. Relief must be speed- 
ily effected to avoid the “ruin” of most citizens of the state. The 
Nashville Clarion lauded the “several men of wealth” who had taken 
up the “fight for relief.” 120 On the other hand, the Nashville Gazette 
opposed the plan. 

Grundy prevailed upon the newly elected Governor Joseph 
McMinn to call the special session for June 26. The Governor, in his 
message to the legislature, recommended a plan for a state money. 
He first cited the diminution in the supply of money and the need 
for its increase. In his plan, the state treasury would issue certificates 
through a loan office, resting vaguely on faith in public responsibil- 
ity, and on the usual general pledge for eventual redemption from 
revenues of public land sales and taxation. Three hundred thousand 
dollars in notes would be emitted by a loan office under control of 
the legislature, which would have many branches in the various 
counties. Its notes would be receivable in dues to the state. 1-1 The 
proposal was shepherded and considerably expanded in the House 
by Felix Grundy. 122 His bill provided for two loan offices, one in 
Nashville and the other one in Knoxville, with eight branches 
between them. Total note issue would be $7 50 thousand; $488 thou- 
sand in the Nashville area, and $262 thousand in the Knoxville area. 
This, he declared, might be insufficient, in which case the note issue 
should be increased. The notes would be loaned to individuals on 
real estate and personal security, at 6 percent; the maximum loan for 
each person would be $1,000. The maximum denomination note 
was to be $100, to insure plenty of notes in circulation, and to pre- 
vent seepage of large denomination notes out of the state and into 
the hands of eastern creditors. The notes were to rest on “public 
faith” and the eventual proceeds of land sales, and were to be 
receivable in payments to the state. Grundy asserted that the object 
of the legislation was to aid the wealthy as well as the poor, and that 
both groups were ardently for the legislation. 

12n Hamer, Tennessee, p. 233. 

121 Tennessee General Assembly, Journal of the House of Representatives, 1820 
(June 26, 1820): 6-17. 

122 Ibid. July 4, 1820): 49. 


The Panic of 1 81 9 

To the criticism that the loan office notes would not be accepted 
by the New York and Philadelphia creditors of Tennessean mer- 
chants, Grundy retorted that this would be so much the better, since 
the notes should stay at home. When that happened, surplus pro- 
duce of the state could be the medium of traffic, rather than gold 
and silver. Grundy, in conclusion, lauded his proposal as positive 
and for the benefit of the community. 

Representative William Williams, also of Davidson County, led 
the opposition to the Grundy plan. He offered two amendments to 
the bill: one to reduce authorized issue to $500 thousand, and the 
other to pledge in redemption a definite quantity of treasury sur- 
plus, thus effectively converting the plan into a far more limited 
operation. Both amendments were turned down by almost two-to- 
one majorities. 123 Another major leader of the opposition was Rep- 
resentative Pleasant M. Miller, from Knoxville, who submitted a 
series of amendments to reduce the branches or add funds for 
redemption, but all were overwhelmingly defeated. Finally, the 
Grundy bill passed by a two-to-one vote. 124 

The passage of the Grundy bill engendered a great deal of bit- 
terness. Protesting legislators submitted two separate resolutions 
against the bill. On the day of the passage, Representative Sampson 
David of Campbell County, in East Tennessee, submitted his rea- 
sons for voting against the bill. Among them he charged that this 
was an “untried and dangerous experiment,” that all paper institu- 
tions were ruinous to the best interests of the country, and that one 
man’s property would be used to pay the debts of another. A week 
later, 121 Miller submitted a protest signed by six of the other oppo- 
nents of the bill, with the result that eight of the thirteen voting 
against the bill felt it incumbent on them to register a protest. 
Miller’s statement was more reasoned than David’s. Miller stated 
that the loan office notes would only be exchangeable in the bank 
notes of the state, which continued to depreciate. Therefore, the 

123 Ibid. (fuly 7, 10, 1820): 61, 65. 
124 Ibid. (fuly 11, 1820): 68-72. 
125 Ibid. (fuly 17, 1820): 99-106. 

State Proposals and Actions for Monetary Expansion 


loan office notes would not be higher in value than the bank notes. 
In fact, they would be lower, since no funds for redemption would 
be possible for at least five years. Miller warned that the banks, 
which were the bulk of the creditors, would not receive the new 
notes, so that the notes would depreciate still further. 

The loan office bill reached the Senate floor on July 14. Senator 
Samuel Bunch, from East Tennessee, moved to reduce the issue to 
$500 thousand, but this motion was defeated, and the amendment 
to make the notes redeemable in specie or specie paying bank notes 
was rejected by almost three to one. A stay provision for two years, 
if creditors refuse to accept the notes, was retained by a large mar- 
gin despite an effort to strike it out. Another limiting amendment 
was approved, however — Nashville’s Adam Huntsman’s proposal to 
eliminate the Grundy provision to establish branches in every 
county. However, amendments to prohibit loans either to directors 
of the office or to members of the legislature were overwhelmingly 
rejected. 1-6 

A famous incident occurred at this point. General Andrew 
Jackson, a wealthy cotton planter from Nashville, and several other 
citizens of that town, sent a very vigorous memorial to the Senate 
denouncing the loan office bill as unconstitutional and ruinous. 
Senators Adam Huntsman and David Wallace denounced the 
memorial and successfully had it tabled by a vote of 11 to 5. How- 
ever, it did have the effect of changing the cast of the bill. Instead 
of a loan office bill, it was converted into a bill for a Bank of the 
State of Tennessee. The measure was, however, in fact made more 
expansionist by eliminating even the pledge of future revenue and 
simply basing the notes on the “faith of the state.” 127 The House 
forced a reversion to the eventual pledge of public revenue, but it 
also raised the maximum note issue by $1 million, although the 
final bill passed by only one vote. The Senate proposed striking 
out the maximum limit, but the House by a large majority failed to 

126 Tennessee General Assembly, Journal of the Senate, 1820 (July 5, 1820): 
45; (July 14, 1820): 77f£; July 15, 1820): 83ff. 

127 Ibid. (July 21, 1820): 109ff. 


The Panic of 1 81 9 

concur. Finally, after a most vigorous controversy, the bill passed 
the legislature on July 27. 128 

Andrew Jackson had been most determined in opposing the leg- 
islation. 1-9 In his memorial, he leveled a far-reaching attack against 
the bill. 130 Jackson asserted that the loan office notes would not 
maintain equivalence with specie. All inconvertible notes depreciated 
down to a negligible value, and as evidence the memorial cited the 
old Mississippi Bubble. Jackson also cited the “judicious political 
economists,” who had established that “the large emissions of paper 
from the banks by which the country was inundated, have been the 
most prominent causes of those distresses of which we at present 
complain.” The abundant money supplied by the banks raised prices 
and led to extravagant expenditures. The increased paper money and 
higher prices depressed manufactures by artificially raising the high 
price of labor and making American products overpriced in foreign 
markets. If, Jackson and his associates concluded, “the paper issued 
by the banks upon a specie basis had been the prolific parent of so 
much distress, how greatly must this pressure be augmented by the 
emission of loan office notes.” Furthermore, these notes would not 
only burden tradesmen and farmers but would give a special privi- 
lege to the imprudent speculative debtor. 

The remedy offered by Jackson and his associates for the depres- 
sion was the same as that advanced by so many others; a return to 
industry and economy, an abandonment of extravagance and exces- 
sive debt. A return to industry and simplicity would restore confi- 
dence and bring back much of the hoarded specie into circulation. 

128 Tennessee General Assembly, Journal of the House of Representatives, 1820 
(July 19, 1820): 123; (July 20, 1820): 126; July 25, 1820): 159; (July 27, 1820): 
175f£ Tennessee General Assembly, journal of the Senate, 1820 (July 21, 25, 
1820): 130; July 26, 1820): 135. 

129 Jackson to Major William Berkeley Lewis, July 15, 1820; Lewis to Jack- 
son, July 15, 1820; Jackson to Lewis, July 16, 1820, New York Public Libraty Bul- 
letin 4 (May 1900): 162; June 1900): 188-91; and Parks, “Felix Grundy,” p. 32. 

^3°Niles’ Weekly Register 19 (September 2, 1820): 9. 

State Proposals and Actions for Monetary Expansion 


The meeting which sent this memorial was organized by Jackson 
in Davidson County on July 15. He also organized meetings in adja- 
cent Sumner and Wilson Counties. His friend Major William Berke- 
ley Lewis tried to throw cold water on his moves by writing Jackson 
that the proposed legislation was really not much worse than private 
banks, and that the majority of Nashville citizens favored it. Jackson 
countered that the people were overwhelmingly opposed. The Jack- 
son efforts met with bitter criticism both in the legislature, and from 
a grand jury of Davidson County, which accused the memorialists 
of attempting to thwart the will of the people. 131 

The final act establishing the Bank of the State of Tennessee 
was very similar to the loan office proposal. Nominal capital was $1 
million, bank notes were to be in denominations of $1 to $100, and 
the notes were to be eventually redeemed by public funds. All pub- 
lic money was to be deposited in the bank. Loans were to be for one 
year, at 6 percent interest, and personal loans to be limited to $500. 
The bank could not call in more than 10 percent of a loan when 
due, except after sixty days’ notice. Personal loans would be renew- 
able every three months. Notes were authorized up to $1 million. A 
stay provision held up executions for two years unless the creditor 
accepted the bank’s notes. 

The new bank was never popular in Tennessee. The proponents 
were disgruntled because they felt the 6 percent interest charge to 
be too high. On the other hand, the notes immediately depreciated 
to a great extent. The Nashville Bank and the old private Bank of 
Tennessee refused to accept the notes of the new state bank. Fur- 
thermore, they did their best to thwart inflation of the currency by 
calling their loans and contracting their note issue. 1 ’ 2 In June, 1821, 
the bank received a severe blow when the Supreme Court of Ten- 
nessee declared the stay provision unconstitutional. The handwrit- 
ing for the bank was on the wall. 

Both gubernatorial candidates in the 1821 elections staunchly 
favored rapid return to a specie basis. One of the candidates was 

131 Ibid. 19 (November 18, 1820): 283. 
132 Hamer, Tennessee, p. 235. 


The Panic of 1 81 9 

Colonel Edward Ward of Nashville, a conservative planter and the 
leading cosigner of the Jackson memorial. He issued a circular to 
the people during his campaign denouncing the emission of paper 
by the new bank. Ward admitted that a large supply of paper might 
help the debtor, but only through injuring the creditor. Further- 
more, the depreciation of currency had brought evil results to the 
whole country. The remedy, then, was for each individual to practice 
thorough economy, and for a prompt return to specie payments. 

His successful opponent, Major-General William Carroll, a 
Nashville merchant, had practically the same views. He also advocated 
a prompt return to specie payment. As a matter of fact, his basic view, 
even though he himself was a director of the Farmers’ and Merchants’ 
Bank of Nashville, went beyond Ward’s in opposing all banks. He also 
attributed the crisis to the previously undue increase in the volume of 
bank notes. 133 In Iris Inaugural Message, Carroll denounced the evil 
consequences which had resulted from the state bank: 

When floodgates are thrown open . . . there is no safe 
criterion to regulate . . . emission. The moment you issue 
more than is necessary, it depreciates . . . [particularly] . . . 
beyond our own neighborhood. . . . Every specie dollar 
that can be obtained from the vaults of the banks is . . . 

He called for gradual resumption of specie payments to restore 
confidence; prompt resumption, he concluded, would put undue 
pressure on debtors. 1 ’ 4 

Carroll acknowledged that distress existed, but declared the only 
remedy to be industry and economy; these remedies had to be put 
into effect by the individual. By 1 822, Carroll declared that the pecu- 
niary embarrassments had “greatly diminished” due to the industry 
of the citizens. 1 ’ 3 

133 Ibid., pp. 236—37. 

134 Tennessee General Assembly Journal of the House of Representatives, 1821 
(September 21, 1821): 49. Sellers seems to undervalue the extent of Carroll’s 
opposition to the new state bank. Sellers, “Banking.” 

335 Golden, “William Carroll,” p. 19. 

State Proposals and Actions for Monetary Expansion 


The Bank was not ended quickly, however, as Grundy managed 
to batde the Administration for many years. A bill was passed in 
1821 providing for resumption by all the banks by 1824, but the 
Grundy forces managed to postpone the full resumption of specie 
payments in Tennessee until July, 1826. 136 It ceased to be an impor- 
tant factor, even though its formal existence was extended to 1831, 
when it ended with a shortage of funds of $100 thousand. 

The state of Kentucky had a checkered banking history before the 
crisis of 1819. Since 1 806, the dominant bank in the state had been the 
Bank of Kentucky, with $1 million capital stock. This bank was half 
owned by the state, and half the directors were government- 
appointed; consequently, its operations were intimately associated with 
the government. During the postwar boom, the legislature chartered, 
in one session of 1817—18, no less than forty-six new banks with a 
total capitalization of $10 million. This contrasted to the total of two 
banks previously in existence in the state. The legislature made the 
entire banking structure very weak by authorizing redeemability of 
their notes in the notes of the Bank of Kentucky, as well as in 
specie. 1 ,7 The new banks expanded their credit and note issue greatly 
during the summer of 1818, and large speculative loans were lavishly 
granted. The crisis of 1819 hit Kentucky severely, and monetary diffi- 
culties figured prominently in the debacle. During 1819 and 1820, all 
of the new banks failed; they were not able to redeem in Bank of Ken- 
tucky notes or in specie. Still more significant was the suspension of 
specie payments by the Bank of Kentucky itself in November, 1818. 
The Bank of Kentucky had expanded its issue during the boom, too, 
and much of the pressure for redemption came from balances which 
had accumulated against it in favor of the Bank of the United States, 
some of them receipts of the government land office. 1 ’ 8 

136 Sumner, Historj of Ranking, p. 150. 

137 Duke, Histoiy, pp. 14ff. Also see Elmer C. Griffith, “Early Banking in Ken- 
tucky,” Proceedings of the Mississippi Valley Historical Association 2 (1908-09): 168-81. 

138 See the Report of the Underwood Committee (headed by Representa- 
tive Joseph R. Underwood) on the causes of the suspension of specie pay- 
ment by the Bank of Kentucky, Kentucky General Assembly, Journal of the 
House of Representatives, 1 81 8-19 (December 11, 1818): 44-49. 


The Panic of 1 81 9 

Representatives of the leading banks of Kentucky met at Frank- 
fort on May 17, 1819, and pledged to cooperate among themselves 
to increase the circulating medium, without suspending specie pay- 
ments. Suspensions, however, continued apace. 139 

In this troubled monetary situation, a group of citizens of 
Franklin County, containing the city of Frankfort, met on June 4, to 
take into consideration the present state of the country and devise 
means to avert impending distress. 140 They drew up a set of resolu- 
tions which became famous throughout the country, drawing com- 
ment from the presses of Washington, Philadelphia, and New York. 
This was probably due to the eminence of the sponsors, unusual for 
county meetings of this type. Chairman of the meeting was Jacob 
Creath, an outstanding minister and orator, and also present were 
such leading political figures as George Adams, George M. Bibb, 
John Pope, and Martin D. Flardin. 141 It is interesting that even the 
bitter eastern opponents of the resolutions admitted the unques- 
tioned respectability of the participants. The Frankfort Resolutions 
began by pointing to the economic distress, the “scarcity of money,” 
the pressure of debtors, the “smaller employment,” lack of confi- 
dence, and disruption of trade. The resolutions first charged the 
banks with largely causing the distress by expanding loans and note 
issues, thereby encouraging speculation and extravagant spending, 
and leaving themselves vulnerable to runs for specie. After this 
analysis, the resolutions called upon the banks to do their proper 
share to remedy the depressed conditions. What should the banks 

139 Cheves to Crawford, June 12, 1819, U.S. Congress, American State Papers: 
Pittance 4, no. 705 (March 22, 1824): 883. 

^Philadelphia Union, June 9, 1819. 

141 George M. Bibb was to become one of the main leaders of the relief 
movement. Bibb, from Lexington, was a distinguished jurist and statesman — 
a former Chief justice of the Kentucky Court of Appeals, and former Sena- 
tor. He later became United States Secretary of Treasury. He was widely 
known as a “gentleman of the old school.” Martin D. Hardin was a famous 
lawyer from Frankfort, Speaker of the Kentucky House, and former Con- 
gressman. He was later to become United States Senator. He had Federalist 
and later Whig tendencies. 

State Proposals and Actions for Monetary Expansion 


do to fulfill the responsibility? They should “suspend specie pay- 
ments and make moderate paper issue.” Furthermore, the legislature 
should meet in special session and take steps quickly to permit the 
banks to continue in operations while suspending specie payments. 
This was a curious charge indeed upon the banks. It was not without 
justice that the New York American charged that from the proposals 
one would think the meeting was a convention of bank directors . 142 
The resolutions did suggest, however, a maximum legal regulation 
on the amount of bank paper that could be issued during the sus- 
pension, violation of which would forfeit a bank’s charter. 

The Frankfort Resolutions created a great stir, notably in Ken- 
tucky but throughout the country as well. In Kentucky, countywide 
meetings of citizens immediately mushroomed, some supporting, 
some opposing the Frankfort proposals. In nearby Bourbon 
County, a citizens’ meeting passed nearly unanimously similar reso- 
lutions calling for a special session to permit suspension of specie 
payments, and liberal note issue by the banks. Adjacent Shelby and 
Scott Counties also endorsed the proposals . 143 Nearby Harrison 
County issued a similar resolution, but along slightly more conser- 
vative lines. It called for the banks to make new issues of paper, 
postpone their demands on debtors, and for the government to per- 
mit suspensions of specie payments. It refused, however, to endorse 
the demands for a special session. 

The Frankfort Resolutions provoked vigorous reactions by con- 
servative papers in the East, especially in New York City. William 
Coleman, editor of the New York Evening Post and the former 
“Field Marshal of Federalism,” issued an editorial denouncing the 
proposals . 144 After proudly proclaiming that in New York City there 
would be no suspension of specie payments, the Vost declared that 

14-John Pope, one of the leading sponsors of the meeting, had repre- 
sented the Bank of Kentucky at the earlier conference of banks at Frankfort 
in May. 

143 See the Washington (D.C.) National Intelligencer, June 9, 19, 23, 26, 1819. 

144 New York Evening Vost, June 15, 1819. Coleman had been installed by 
Hamilton upon the founding of the New York Evening Post. He later became 
a supporter of Crawford and Jackson. 


The Panic of 1 81 9 

any new monetary issue would simply depreciate proportionately. 
“The attempt to raise prices by increasing the circulating medium is 
only to make the same quantity of produce pass for a greater nom- 
inal amount in paper.” The best course for the banks would be to 
stop and issue no more irredeemable paper, and to redeem the notes 
which they had already issued. To refuse to redeem notes and to 
continue issuing more, declared Coleman, “under the pretext of 
keeping up the value of property,” would be just as wise as it would 
be for farmers to establish a bank in every field of corn to keep up 
the price of grain by issuing notes to facilitate purchase. Other 
papers attacking the Frankfort Resolutions were the New York 
American, New York Daily Advertiser, and the National Intelligencer. 
The American and the Intelligencer conceded that the participants at 
the Frankfort meeting were highly respectable citizens . 143 

Although the Frankfort Resolutions were denounced in the east- 
ern press, the controversy over the resolutions must not be con- 
ceived as an East- West conflict. The debate within Kentucky was 
spirited and determined, and the opposition was centered in the 
same geographical area as the proponents. Thus, the resolutions 
were attacked by two leading Kentucky newspapers — the Frankfort 
Kentucky Argus and the Lexington Kentucky Herald — which 
denounced the proposals as “shielding the extravagant debtor from 
his honest creditor,” and as trying to “interfere in individual trans- 
actions, and thereby ... to destroy confidence .” 146 The Argus main- 
tained that most Kentuckians opposed the resolutions . 147 
“Franklin” conceded a shortage of specie in the West, but stated the 
reason to be lack of confidence in the banks. “This want of confi- 
dence induces every man . . . who gets possession of a fund of dol- 
lars, to lay it by.” The proper remedy commended to his fellow citi- 
zens of Louisville was a law exacting penalties on banks for so 

145 New York American, June 9, 1819; New York Daily Advertiser, June 10, 
1819; Washington (D.C.) National Intelligencer, June 5, 1819. 

146 Washington (D.C.) National Intelligencer, June 9 to 26, 1819. 

147 Reprinted in the New York Kvening Post, June 15, 1819. 

State Proposals and Actions for Monetary Expansion 


much as whispering the idea of suspending specie payments. This 
would restore confidence in the banks and their “specie will be 
abundant .” 148 A citizens’ meeting in Jefferson County, containing 
Louisville, passed by a large majority a resolution that the banks 
ought to continue redeeming their notes in specie and opposing a 
special session. On the other hand, a citizens’ meeting in rural Bul- 
litt County, adjacent to Jefferson, advocated suspension of specie 
payments, especially for the Bank of Kentucky. 

Several rural counties in Kentucky issued anti-Frankfort resolu- 
tions. Nelson, Washington, and Green Counties in the more south- 
ern part of the state, and Mason County on the northern border, 
attacked the proposals for legislative sanction of suspensions of 
specie payment and further bank note issue. Niles, perhaps over- 
op timistically, estimated that the large majority of citizens’ meetings 
throughout Kentucky believed that the banks “should pay their 
debts or shut up shop .” 149 The Washington County resolution 
asserted that distress was not as great as generally represented, and 
that it was due to speculation and extravagance . 13 ' 1 A suspension of 
specie payment would unjusdy withhold their rightful property from 
the creditors. Furthermore, it would weaken public confidence in 
the banks and would subsidize extravagance and imprudence. The 
increased issue of paper, the resolution declared, would, in the end, 
increase the economic difficulties. The best remedy was for the 
debtors to “bear the chastisements they bring on themselves.” 

Mason County, in a meeting of six hundred citizens, passed a set 
of resolutions almost unanimously . 131 A suspension, it pointed out, 
would destroy confidence in the state’s circulating medium. The 
Mason County resolution maintained that bank credit expansion 
had led to the panic, adding, in opposition to the Frankfort view, 
that they “contemplate with horror ... a resort to that very policy 

148 “Franklin,” in the Kentucky Herald, reprinted in ibid., and also in the 
Boston New England Palladium, June 25, 1819. 

^Niles’ Weekly Register 16 (July 3, 1819): 311. 
l 50 Washington (D.C.) National Intelligencer, June 23, 1819. 

151 Ibid. , June 26, 1819. 


The Panic of 1 81 9 

as a remedy, which has produced so much distress . . . and which, 
instead of alleviating, must lamentably increase the evils which it 
pretends to remedy.” 

A special session was not called. The major batde over relief, in 
the fall elections, was over proposed stay legislation. The victorious 
relief forces passed a stay law in February, 1 820, granting a one year 
extra stay to debtors whose creditors refused the paper of the Bank 
of Kentucky, which had suspended specie payments. 

By mid- 1820, it had become clear that some remedy was needed 
for the troubled monetary situation. In effect, the legislature had 
granted the desire of the relief forces to permit banks to continue 
in operation while suspending specie payments, and had also 
granted special privileges to notes of the Bank of Kentucky. Yet, 
the bank notes continued to depreciate rapidly. The Kentucky Gazette 
warned its readers in the summer of 1819 not to receive any bank 
notes except with great caution, and with the help of appraisals by 
professional brokers, nor to exchange specie and specie paying 
notes for Kentucky notes. Even the banks themselves began to 
refuse each others’ notes. 152 The public began to lose faith in all of 
the state’s bank notes. The tavern keepers and merchants of Frank- 
fort decided not to receive the bills of any bank below the denom- 
ination of one dollar, and a meeting of butchers of Lexington 
decided to refuse any paper not acceptable to the banks of that 
town. As a result, one by one, the “independent” banks, those that 
had been chartered during 1818, were forced to close their doors. 
Public opinion generally held the banks responsible for the crash (as 
could be evidenced even in the Frankfort Resolutions), and this sen- 
timent, coupled with the difficulties of the independent banks, 
resulted in repeal of all those bank charters in February, 1820. 153 
Consequently, the only bank still operating by mid-1820 was the 
Bank of Kentucky. In the meanwhile, the very severe monetary con- 
traction added to the great economic difficulties in the state as debts 

152 Connelley and Coulter, Histoiy, pp. 595ff. 

152 This repeal passed the House by a two-to-one vote, but only narrowly 
passed the Senate. See Niles' Weekly Register'll (June 9, 1820): 224; Connelley 
and Coulter, Histoiy, p. 206; Stickles, Critical Court Struggle, p. 22. 

State Proposals and Actions for Monetary Expansion 


mounted and prices plummeted. Finally, in August, 1820, the con- 
servative administration of Governor Gabriel Slaughter, which had 
done its best to block relief measures, was replaced by the pro-relief 
advocate, Governor John Adair. The expansionist forces moved 
rapidly toward the climax of their effort in Kentucky, the establish- 
ment of a wholly state-owned bank issuing inconvertible paper, the 
Bank of the Commonwealth of Kentucky. 154 The Bank of the 
Commonwealth, enacted on November 29, had a nominal capital- 
ization of $2 million. The legislature elected all the directors and the 
bank had branches throughout the state. The notes were inconvert- 
ible, but the state pledged future revenues from sale of its public 
lands in the West and other surplus revenue. The notes were receiv- 
able in all debts to the state. Loans were to be made on mortgage 
security, proportioned to the population of the district. It was stip- 
ulated that borrowers must use their notes either to repay debts or 
to buy stock and produce. The maximum individual loan was $200. 
To these ends the bank was authorized to issue up to $3 million in 
notes. The appropriation by the legislature consisted simply of 
$7,000 to purchase the plates and paper for printing the notes. The 
object of the act was providing cheap money for debtors for repay- 
ment of their debts. As we have seen, the legislature obligingly 
passed several stay laws to grant preferential treatment to its Bank 
of the Commonwealth. Courts favored debtors’ payment in Bank 
of Commonwealth notes. 

Expansionist forces in the legislature had to struggle to beat 
down many amendments for making the new institution a specie 
paying bank. The hard money leader in the House was Representa- 
tive George Robertson, who for fourteen years had been Chief Jus- 
tice of the Kentucky Courts of Appeals. In the House, an amend- 
ment, defeated by a small margin, would have imposed an interest 
penalty on all notes not redeemed in specie. The provision for the 
state to pledge a redemption fund in the vague future, rather than 
provide it at present, only passed by a small margin. Another rejected 
amendment would have prevented the bank from opening until the 

154 Stickles, Critical Court Struggle, pp. 23f£; Connelley and Coulter, Historj, 
pp. 609—13. 


The Panic of 1 81 9 

state had subscribed $100 thousand in specie or in the notes of 
specie paying banks. The conservative forces managed to defeat a 
provision permitting the bank to lend money on personal property 
as well as real estate — this was defeated by a two-to-one vote. The 
final bill passed the House by a vote of 54 to 40. There was also a 
sharp fight over the authorized note issue. The House had originally 
agreed to a $2 million limit, but the relief forces managed, by a three- 
vote margin, to increase the maximum to $3 million; they failed, 
however, in an attempt to extend it further to $3.5 million. 155 

In the Senate, the batde against the non-specie paying bank was 
led by John Pope, who had shifted from his previous inflationist 
stand. Pope’s amendment to begin penalties for non-redemption in 
specie after three years was defeated by one vote. On the other 
hand, an attempt by extreme pro-relief forces to prevent any future 
possibility of redemption was beaten down by a two-to-one vote. 

Also, a provision to reduce the maximum interest rate on the 
banks’ loans from 6 percent to 3 percent was heavily defeated. The 
final bill passed the Senate by a vote of 22 to 15. 156 

The establishment of the Bank of the Commonwealth was a 
measure of the dissatisfaction of the expansionist forces with the 
semi-private Bank of Kentucky, for the conservatism of its opera- 
tions. The charter of the latter bank was due to expire in 1821, and 
it was clear that the expansionists were aiming for non-renewal of 
the charter, thus closing the bank. The Bank of Kentucky reacted 
belligerendy, contracting its loans and notes and refusing to accept 
the notes of the Bank of Commonwealth. 

During 1821, the Bank of Commonwealth rapidly issued close to 
its authorized $3 million in notes, and the hopes of its proponents 
were high. At the opening of the October, 1821, session of the leg- 
islature, Governor Adair hailed the Bank of the Commonwealth and 
attributed an extensive relief of the “pecuniary embarrassments” of 

155 Kentucky General Assembly, journal of the House of Representatives, 1820 
(November 3, 1820): 88; (November 9, 1820): 112; (November 10, 1820): 117; 
(November 11, 1820): 127; (December 9, 1820): 267; (December 12, 1820): 276. 

156 Kentucky General Assembly, journal of the Senate, 1820 (November 21, 
1820): 109-12; (November 22, 1820): 116ff. 

State Proposals and Actions for Monetary Expansion 


the state to the increased currency provided by the new bank . 157 In 
particular, many heavy debtors had been saved from ruin. Adair 
pointed to the general scarcity of money, particularly the scarcity of 
specie, and the scarcity in circulation of the specie-backed notes of 
the Bank of the United States as evidence that specie did not suffice 
for the currency needs of the country. Banks, in order to obtain 
enough specie, were forced to make heavy calls on their debtors. 
With specie and Bank of the United States notes insufficient, and the 
Bank of Kentucky suspending specie payment, a state currency was 
needed. The duty of every government, declared Adair, was to sup- 
ply a sound and sufficient circulating medium and to “prevent as far 
as practicable the evils of a fluctuating currency.” He admitted that, 
left alone, the condition of the people would gradually improve and 
commerce revive. But the government must not become an acces- 
sory to the distress of its citizens by refusing to perform its mone- 
tary duties. Pursuing the approach that the government should sta- 
bilize the value of its currency, Adair pointed out that specie itself 
was not of invariable value; that value was the price which the prod- 
ucts of labor bore in relation to money. This value fluctuated in 
inverse proportion to an increase or decrease in the quantity of the 
circulating medium. The debtor and creditor should then receive, on 
repayment of the debt, money of the same value as of the time the 
loan was made. “To coerce a literal obedience to contract” when the 
value had greatly changed would be against true equity. The duty of 
the legislature in depressed times was to apply appropriate remedies 
and not await the slow growth of more favorable conditions. The 
clearly proper system was “an increase in the circulating medium.” A 
private specie paying bank could not successfully accomplish this, 
because of the demands upon it for specie should its notes increase. 
Therefore, only use of the resources and faith of the state itself 
could establish a general paper system. 

Adair did not contemplate a permanent inconvertible paper sys- 
tem. He conceded that such would be impossible to establish, but 
felt that this bank merely “anticipated” the future revenues of the 

157 Kentucky General Assembly, Journal of the House of Representatives, 1821 
(October 16, 1821): 9-16. 


The Panic of 1 81 9 

state. Adair warned, however, that it was important to sustain the 
credit of the paper, and that therefore there should be no further 
note issues which might weaken public confidence. 

Legislative satisfaction in their creation was bolstered by a 
report, a few days later, of the eminent John J. Crittenden, president 
of the new bank. 1 " 18 Crittenden reported that, since April of the 
year, when the bank had begun operations, it had issued $2.5 million 
in notes and was preparing to issue half a million more. He reported 
that the bank had decided not to lend for too long a period, in order 
to avoid the evils of the unlimited time granted by banks during the 
boom. The present loans were, in contrast, from four to six months’ 
duration. The bank also decided to call the principal of their loans 
in gradually, at the rate of 1 percent per month. Crittenden also 
stated that since, unfortunately, only a limited number of people 
could obtain the benefit of the loans, the bank, as soon as it 
received payment from one set of borrowers, would lend again to 
another set. 

Crittenden recognized that when the immediate debts were paid 
there would be less demand by debtors for the notes, and so he 
asserted that the regular rate of calls would support the credit of the 
notes until the legislature eventually made the notes redeemable. 

Crittenden concluded that the bank was being highly successful 
in furnishing a circulating medium enabling debtors to repay their 
debts, and to transfer their debt burden to the bank, repaying the 
latter gradually. 

The bank was also commended in a report by Representative 
Samuel Brents, chairman of the House committee on the Bank of 
the Commonwealth. 15 ' 1 Brents, from Green County in southern 
Kentucky, pointed out that, before the current year, most citizens 
were very heavily in debt, and there was little or no market for their 

158 Ibid. (October 20, 1821): 61-71. Crittenden was a noted lawyer from 
Logan County and later from Frankfort, and a close friend of George M. 
Bibb. He later became Kentucky’s leading politician — a Whig, an Adams nom- 
inee for the United States Supreme Court, a United States Senator, and Attor- 
ney General. 

159 Ibid. (November 2, 1821): 153-55. 

State Proposals and Actions for Monetary Expansion 


produce to enable them to repay. The bank and its note issues had 
enabled rapid liquidation of the debt burden. The report com- 
mended the bank and all of its decisions. 

In their triumph, the relief forces failed by only a few votes to 
repeal the Bank of Kentucky charter immediately and to transfer all 
state funds to the new bank. 160 They did pass a resolution urging the 
federal post office to receive the new notes in Kentucky in payment 
for postage. This resolution was attacked by Representative Thomas 
Speed of Nelson County, who asserted that this action implied that 
the inconvertible paper was permanent rather than temporary. He 
pointed out that the notes had already depreciated considerably. 161 

In his legislative message in the spring of 1822, Governor Adair 
continued to eulogize the bank; he declared that it had saved the 
community from severe suffering, permitted payment of debts, and 
helped the restoration of commerce. 162 Adair also added that the 
increased currency had restored activity to construction of 
improvements and provided capital for depressed industry. A note 
of alarm was distinctly sounded in this message, however. Already 
the Bank of Commonwealth notes were beginning to depreciate 
rapidly. In fact, they sold at 70 percent of par as soon as they were 
first issued. 16 ’ Adair exhorted everyone to trust the new bank 
notes — backed by the faith of the state and advanced for the gen- 
eral good of Kentucky; he stated that he could not understand some 
people’s distrust of the new bank notes, a distrust that cast discredit 
on the fair name of Kentucky. 

Before the session had opened, the bank, anxious about the 
depreciation, had decided to try to bolster its credit by increasing 
the rate of calls on its loans to 2 percent per month. This action 
ignited fervent controversy in the legislature. Three legislators 
moved rejection of the change: Representative Tandy Allen of 

160 Ibid. (November 15, 1821): 251-54. 

161 Washington (D.C.) National Intelligencer, November 27, 1821. 
162 Kentucky General Assembly, Journal of theHonseof Representatives, 1822, 
Part I (May 13, 1822): 6-8. 

^Niles’ Weekly Register 20 (June 9, 1820): 225. 


The Panic of 1 81 9 

Bourbon County, a rural county adjacent to Lexington; Representa- 
tive George Shannon of Fayette County, containing commercial 
Lexington; and Representative Speed. One legislator moved 
approval, and two others urged provision of some funds by the 
state to enable redempdon in specie. Representative Hugh Wiley of 
Nicholas County advocated that the bank issue no further notes. 164 
Dominant sentiment was for the restoration of the more gentle 
1 percent call, and resolutions to that effect were submitted by Rep- 
resentative Charles H. Allen and Representative Shannon from the 
Committee on Currency. Allen represented Henry County in west- 
ern Kentucky. 

On May 21, a frankly grave report was submitted by President 
Crittenden and the Board of Directors, on the “present depreciation 
of the paper of this bank” and the means to correct it. 165 The report 
declared that for the past several weeks there had been constant and 
rapid depreciation of the bank notes in the main commercial centers 
of Lexington and Louisville, and that, at this time, it had depreciated 
to about 62 percent of par. In contrast to the optimism of the pre- 
vious fall, Crittenden declared that there was no prospect of pre- 
venting further rapid depreciation, unless the cause were removed. 
The major cause was the “super-abundance of bank paper, com- 
pared with the demand of the community.” The original heavy debt 
burden had been extinguished, while the circulating medium had 
“increased to a degree hitherto unknown.” Thus, the demand for use 
of the notes had decreased just at a time when its amount had been 
rapidly increasing. Once the redundant paper came “into contact 
with” specie and the various commodities, it instantly depreciated. 
Crittenden deprecated the alleged influence of brokers in bringing 
about the decline, asserting that the depreciation would have 
occurred without them. The final consideration for Crittenden was 
that Kentucky, being a part of a great, interconnected nation, could 
not maintain a purely local inconvertible currency without suffering 
the evils of depreciation as well as great fluctuations in its value, 

164 Kentucky General Assembly, Journal of the House of Representatives, 1822, 
Part I (May 15, 1822): 55f£; (May 17, 1822): 59; (May 21, 1822): 66ff. 

165 Ibid. (May 21, 1822): 76-79. 

State Proposals and Actions for Monetary Expansion 


especially since the surrounding states were either on a specie basis 
or were rapidly returning to one. Unless checked by drastic action, 
Crittenden warned, the depreciation would proceed, and end circu- 
lation of the paper entirely, destroying the bank. The people, already 
fearing such an eventuality, were accelerating the very depreciation. 
Farmers and mechanics were beginning to realhe that such a depre- 
ciated currency was ruinous to their interests, and that the increased 
prices of imports from other states and countries constituted a vir- 
tual tax upon their industry. In self-defense they would soon com- 
pletely reject the paper of the bank. 

Thus, its president virtually repudiated the basis of the bank’s 
operations. He maintained that the only means of saving the bank 
would be to cease lending, and heavily contract, thus sharply reduc- 
ing the notes in circulation. 

The legislature, however, was in no mood as yet for such blunt 
messages. On the contrary, the House passed the Allen Resolution 
submitted by Representative Tandy Allen of Bourbon County, to 
reduce the rate of calls to 1 percent per month, by a two-to-one mar- 
gin, and beat down by slim margins modifying amendments to reduce 
the note issue of the bank, and to begin providing funds for redemp- 
tion of the notes. The Senate, however, refused to agree to this reso- 
lution, and the 2 percent recall rate was finally allowed to stand. 166 

The state, in the meantime, was in turmoil over the bank notes. 
Actually the notes had never been at par, and by the spring of 1 822 
were depreciated by 50 percent. Dispute was bitter on the merits of 
the bank notes. One critic wrote caustically that the only good qual- 
ity of the notes was that they were too valueless to be worth coun- 
terfeiting. 167 Many people refused to accept the Commonwealth 
notes at any price, and this included many stock raisers, hemp and 
tobacco growers, commission merchants, and stage drivers. In fact, 
by 1822, it was impossible to use the notes in any everyday transac- 
tions. This included postage, which had to be paid in specie or 
United States Bank notes. 

166 Ibid. (May 23, 24, 1822): 91-102. 

167 B.B. Still to J.C. Breckenridge, August 16, 1821, in Connelley and Coul- 
ter, Histoiy, p. 615. 


The Panic of 1 81 9 

Bitterly and increasingly, opponents denounced the bank as 
destroying confidence, commerce, credit, and trade, and leaving the 
poor with a heavy debt to the state as well. Many had opposed the 
bank from its inception on the ground that it was no concern of the 
state’s to help debtors, and that thrift and industry were the only 
remedies for the crisis, as well as on predictions of inevitable depre- 
ciation. On the other hand, the advocates of expansion continued 
to declare that the depreciation was really a blessing, since the very 
fact that imports from other states were cut off encouraged manu- 
facturing in the state. The Kentucky Gazette went so far as to declare 
it good that the federal government did not accept the new notes in 
payment for public lands, since there would now be no great incen- 
tive for good Kentuckians to emigrate further West. It added that 
the depreciation “protects” Kentucky from imports of iron, leather, 
wool, and hemp. 168 

The end of the state bank experiment was signaled by the capit- 
ulation of the leader of the relief forces, Governor John Adair. 169 
In his message to the legislature in October 1822, only a year after 
his warm approval of the bank, Governor Adair concluded that leg- 
islative intervention could not really aid financial troubles. The only 
remedies, he asserted, were economy, industry, and the trade of for- 
eign commerce. It was true, he declared, that government aid was 
often useful in emergencies, but to continue such measures would 
be destructive and demoralizing. The relief measures succeeded in 
alleviating distress, but now they must be ended. Adair recom- 
mended rapid contraction of loans and notes, and immediate with- 
drawal of one-sixth of the total outstanding. In this way, the 
exchange value of the notes would appreciate. Adair recognized that 
diminution in the money supply would be inconvenient, but he con- 
cluded that the state would be more than compensated by the re- 
establishment of credit and the “freedom of circulation” of the 
appreciated currency. 

l f,8 Kentucky Gazette, May 9, May 21, in Connelley and Coulter, History, 
p. 617. Also see Baylor, John Pope, pp. 163-64. 

169 Kentucky General Assembly, Journal of the House of Representatives, 1822, 
Part II (October 22, 1822): 12-14. 

State Proposals and Actions for Monetary Expansion 


The legislature moved more than enthusiastically to implement 
these recommendations. It provided for the calling in of $1 million 
of Commonwealth notes in twelve months, with one half to be 
immediately recalled, and the received notes to be burned. The 
burning of Bank of Commonwealth notes took place in public bon- 
fires in Frankfort throughout the ensuing year, to the plaudits of 
such conservative observers as Hezekiah Niles, and to the discom- 
fiture of the expansionists, who complained of the injustice to 
debtors. In January, 1823, more than $770 thousand worth of notes 
were publicly burned. 17 " As the notes diminished in quantity and 
half were withdrawn from circulation, they gradually approached 
par. 171 A proposal to repeal the Bank Act immediately failed by a 
two-to-one vote, but the bank ceased to play an active role, although 
it continued formally in existence until the Civil War. 172 

Another monetary experiment was performed in March 1 822, by 
the city of Louisville. Louisville issued an inconvertible city currency 
in small denominations, from six cents to one dollar, to an amount 
totaling $47 thousand. This currency was receivable for all taxes and 
debts due the city; future city taxes and property were pledged for 
future payment. These notes soon depreciated to a negligible value, 
and all were retired and burned by the end of 1826. 17/1 

In sum, the most spectacular expansionist measures were the 
establishment in several western states — Tennessee, Kentucky, Illi- 
nois, and Missouri — of new state-owned banks to issue inconvert- 
ible currency. In each of these states, all the banks had suspended 
specie payment during the depression. After controversy, they had 
been allowed to continue in operation, but their notes depreciated 
rapidly. The legislatures then turned, despite heavy opposition, to 
establishing the new state-owned banks. 

170 Wilson, History, II, 127. 

171 Connelley and Coulter, Histoiy, p. 618; and Stickles, Critical Court Strug- 
gle, p. 28. 

172 Duke, History, p. 21; Wilson, History, p. 127. 

17 ’Reuben T. Durrett, The Centenary of Touisville (Louisville, Ky.: J.P. Morton 
and Co, 1893), pp. 90-92. 


The Panic of 1 81 9 

All of these monetary ventures began in high hopes to issue 
large quantities of notes. But all came quickly to grief, despite such 
aid by the states as legal tender provisions and penalties against 
depreciation. The notes depreciated rapidly almost as soon as oper- 
ations began, until the public began to refuse acceptance. In Mis- 
souri and Tennessee, the depreciation was spurred by court deci- 
sions adverse to the constitutionality of the notes or the accompa- 
nying stay laws. Opinion in each of the states swung sharply against 
the new paper, and where the notes did not disappear from circula- 
tion, steps were taken to halt and eventually to liquidate the projects. 

This record of monetary expansion should not lead us to label 
the West as simply “soft money” and the East as “hard money.” 
Many western states were monetarily quite conservative during the 
depression. And those that adopted loan office projects did so only 
over bitter opposition. Nor were the other states, especially in the 
South, free from expansionist proposals or policies. In some south- 
ern states, banks were allowed to suspend specie payment completely 
and continue operations, while in others, banks were allowed to sus- 
pend payment to suspected “money-brokers.” These brokers were 
money-changers who purchased bills of shaky or remote banks at a 
discount and then attempted to redeem the mass of notes at par. 
They performed the function of a rudimentary clearing system, and 
were naturally hated by the banks whose notes came home to roost. 

Only staunchly hard money Virginia remained free from expan- 
sionist agitation. Maryland and Delaware passed anti-depreciation 
laws over bitter opposition, in vain attempts to bolster the credit 
of suspended banks by outlawing depreciation. Loan office pro- 
posals were considered in several eastern states, but were turned 
down in all of them. On the other hand, many eastern states 
enforced specie payment on most of their banks, and New York 
and New England remained largely free of expansionist agitation 
or policy. Massachusetts, however, considered, and rejected, an 
anti-depreciation measure. 

Thus, one of the sharpest and most interesting controversies 
generated by the panic centered on the money supply. One group 
urged various plans for monetary expansion, some of which were 

State Proposals and Actions for Monetary Expansion 


adopted; while the majority of articulate opinion advocated restora- 
tion of specie payments and abstinence from inflationist schemes. 
Leading figures on both sides were propelled to engage in trenchant 
economic analysis in finding support for their positions. Although it 
is true that the inflationists were relatively stronger in the West, it 
must not be overlooked that bitter disputes raged within each 
region, state, and locality. Neither was there a discernible class, or 
occupational, demarcation of opinion, and both sides were headed 
by wealthy, respectable men. 


Proposals for National 
Monetary Expansion 

Since state banks were a state responsibility, the discussion of 
monetary remedies for the depression took place mainly on a state 
level. Some people, however, envisioned inconvertible paper cur- 
rency on a national scale, and put forward proposals to that effect. 

The simplest method of attaining a national inconvertible paper 
currency, given the existing situation, was a general suspension of 
specie payments, including suspension by the Bank of the United 
States. The bank’s inconvertible notes would then have been the 
basic national currency — a less radical course than the governmen- 
tal creation of a new type of inconvertible paper. Some suggestions 
for this relatively moderate approach appeared. “A Mercantile Cor- 
respondent” advanced a cautious plan for a five-year suspension, 
with the bank to purchase one to two million of specie per annum, 
so that the bank would own five to ten million in specie at the end 
of five years, a sum which the writer deemed ample to resume pay- 
ment. 1 The writer advocated a quasi legal tender plan, through an 
enforced stay of execution should the creditor refuse to accept the 
notes. “Mercantile Correspondent” proposed a maximum limit of 
$35 million on outstanding sums of United States Bank notes, 
which would function as standard money. The other banks would 
need no statutory limitation, since each bank would be required to 
pay its obligations daily to every other bank, this interbank compe- 
tition acting as a check on their respective issues. 

^‘Mercantile Correspondent,” Washington (D.C.) National Intelligencer, 
December 30, 1819. 



The Panic of 1 81 9 

Emergency suspension of specie payments by the bank was advo- 
cated by the highly influential Oliver Wolcott of Connecticut, for- 
merly Secretary of the Treasury. Wolcott offered no detailed plane 

Another writer more boldly advocated permanent abandonment 
of specie payments and use of the bank notes as standard currency . 2 3 
“One of the People — A Farmer” asserted that the credit of the 
bank and confidence in its notes depended on its capital and skill 
rather than on the quantity of its coin. A critic calling himself “Agri- 
cola” attacked this position, asserting that the credit of a bank is 
determined precisely by the quantity of its specie . 4 5 Confidence in a 
bank, declared “Agricola” shrewdly, is dependent on public opinion 
concerning the amount of specie that the bank possesses. Specie, 
after all, was the means for banks to pay their debts. The writer 
decried excessive, and therefore depreciating, note issue. Banks, he 
stated, could not add to the national wealth or capital. Their sole 
legitimate object was to furnish facilities for exchange and to trans- 
fer money from one place to another. 

One of the most detailed proposals for an inconvertible paper 
based on the existing Bank of the United States was put forward by 
“An Anti-Bullionist” in a pamphlet . 3 The author attributed the crisis 
to the external drain of specie, particularly to the East Indies, which 
had caused a deficiency of the currency supply within the country. 
The solution was to substitute for specie a “well-regulated” paper 
money. This purely domestic money would enable development of 
the nation without danger from foreign competition or influence. 
Notable in “Anti-Bullionist’s” approach was his attempt to guard 
against excessive issue of the notes and subsequent depreciation. 

2 Oliver Wolcott, Remarks on the Present State of Currency, Credit, Commerce, 
and National Industry (New York: Wiley Co., 1820). 

3 “One of the People — A Farmer,” Washington (D.C.) National Intelligencer, 
April 17, 1819. Also see “A Citizen,” Baltimore Telegraph, reprinted in the Rich- 
mond Enquirer, June 1, 1819. 

4 “Agricola,” in Washington (D.C.) National Intelligencer, April 21, 1819. 

5 “An Anti-Bullionist,” An Enquiry into the Causes of the Present Commercial 
Embarrassments in the United States with a Plan of Reform of the Circulating Medium 
(1819): 45ff. 

Proposals for National Monetary Expansion 


His goal was stability in the value of money; he pointed out that 
specie currency was subject to fluctuation, just as was paper. More- 
over, fluctuations in the value of specie could not be regulated; they 
were dependent on export, real wages, product of mines, and world 
demand. An inconvertible paper, however, could be efficiently regu- 
lated by the government to maintain its uniformity. “Anti-Bullionist” 
proceeded to argue that the value of money should be constant and 
provide a stable standard for contracts. It is questionable, however, 
how much he wished to avoid excessive issue, since he also specifi- 
cally called a depreciating currency a stimulus to industry, while 
identifying an appreciating currency with scarcity of money and 
stagnation of industry. One of the particularly desired effects of an 
increased money supply was to lower the rate of interest, estimated 
by the writer as currently 10 percent. A lowering would greatly 
increase wealth and prosperity. If his plan were not adopted, the 
writer could only see a future of ever-greater contractions by the 
banking system and ever-deeper distress. 

The “Anti-Bullionist” therefore proposed that the Bank of the 
United States issue non-redeemable paper, with the notes of the 
state banks redeemable in the new notes. In contrast to England, 
where the central bank was not subject to any legal check on its 
issue, the bank’s notes would be limited by a certain ratio to a Trea- 
sury issue of inconvertible notes, bearing interest of 3 percent. In 
this elaborate plan, while the bank notes would be redeemable in 
Treasury notes or in specie at the bank’s option, because of their 
interest-bearing quality the Treasury notes would not be money and 
would not enter into circulation. The Treasury notes would also be 
redeemable, at the option of the Treasury, in specie or in the par 
value of 6 percent government bonds. Thus, the bank notes would 
have a roundabout if tenuous connection with specie and would 
supposedly be supported at par to specie. 

The author, however, was not sure about the efficacy or desir- 
ability of the specie check, and advocated in addition a direct check 
on the bank’s issue, by a Board of Commissioners appointed by the 
federal government. The Board would engage in careful study of 
the foreign exchange market, and would require the bank to keep its 


The Panic of 1 81 9 

note issue limited to that amount which would tend to preserve the 
average foreign exchange rate of the dollar at approximately par, 
never depreciating more than 5 percent below. In this way, the 
author proclaimed, in an early version of a specie exchange stan- 
dard, that since the European currencies would be kept at par with 
specie, the American currency would also be kept at par, though not 
direcdy redeemable. The writer finally envisioned a Treasury note 
supply of $20 million supporting a total monetary circulation of 
$100 million at par value in foreign exchange. 

The outstanding advocate of a national inconvertible paper 
money was unquestionably Thomas Law, one of the leading citizens 
of Washington. 6 Law came from a remarkable English family. His 
father was a bishop, patron of the famous Dr. William Paley, and his 
brothers numbered two bishops, an M.P., and Edward Law, Lord 
Chief Justice of England. Thomas Law himself had been a top- 
flight civil servant in India and had married a daughter of Martha 
Washington. He was a friend of the leading Washington figures, 
including John Quincy Adams, William Crawford, John C. Calhoun, 
and Albert Gallatin. Law had first propounded his plan years before 
the depression began, but the advent of the panic spurred him to 
truly zealous efforts on its behalf. 7 His influence in Washington was 
such that despite the poor opinion held of his scheme by the edi- 
tors of the leading semi-official National Intelligencer they gave him 
space to expound it in almost every issue. 8 Law’s articles are to be 
found under various pseudonyms, the most prevalent being 
“Homo,” and others being “Parvus Homo,” “Philo Homo,” “H,” 
“Statisticus,” “Justinian,” and “Philanthropus.” He also carried on 
debates between his various pseudonyms on his monetary views. 

6 On Law see Allen C. Clark, Greenleaf and Fau> in the Federal City (Washing- 
ton, D.C.: W.F. Roberts Co, 1901). 

7 Law stated that he had begun recommending his plan in 1812. “Justin- 
ian” (T. Law), Washington (D.C.) National Intelligencer, November 3, 1821. 

8 See the caustic comment of the editors on Law’s plan in the Washington 
(D.C.) National Intelligencer, May 19, 1819. Also see the vigorous attack on Law 
by William Duane in the Philadelphia Aurora, October 11, 1820. 

Proposals for National Monetary Expansion 


Law criticized the Bank of the United States, which he consid- 
ered an evil source of restriction on monetary expansion. He pro- 
posed to substitute a National Currency Board, to be appointed by 
the President and Congress. 9 The board was to issue an inconvert- 
ible national paper currency, in denominations above one dollar, 
with mixed coins to be issued for small change. A daring feature of 
the plan was that the new notes were to be loaned in perpetuity, with 
no necessity for repayment of principal while the interest payments 
were maintained. The board would lend the notes in perpetuity to 
the state governments at an interest of 2Vi to 4 percent, in propor- 
tion to their population, on condition that the states in turn lend 
them to individuals at 5 percent in perpetuity. 

Law asserted that these notes would not be issued in unlimited 
amounts. Their supply would be limited by the maintenance of the 
interest rate at 5 percent. When the rate of interest for loans prevail- 
ing on the market fell below 5 percent, the board would cease issuing 
its notes, since no one would come to the government to borrow. In 
fact, Law believed that if the market rate of interest fell below 5 per- 
cent debtors to the government would borrow on the market on 
cheaper terms in order to repay their debt at 5 percent. In this way, 
there would presumably be a stabilizing of the money supply and of 
the rate of interest. One flaw in Law’s plan was that debtors to the 
government would hardly borrow at 4 percent to repay their debts, 
since they need never repay the principal in any case. Such generous 
terms could never be received from private lenders. Law’s limits, 
therefore, would have proved in practice to be virtually non-existent. 

Law envisioned the loans of the board and state governments to 
consist of subscriptions to corporations for roads, canals, and 
bridges; purchase of government and private stocks, and private 
loans. The principal object of the plan, according to Law, was “for 
the community to have a sufficiency of the circulating medium, 
without fluctuations in value by excess or scarcity, and that the inter- 
est of money may be low.” 10 Law pointed to England — his birth 

9 Ibid., May 12, 1819; City of Washington Gazette, May 12, 1819. 

10 “Justinian” (T. Law), Remarks on the Report of the Secretary of the Treasury 
(Wilmington: R. Porter Co., 1820), pp. 22—23. 


The Panic of 1 81 9 

place — as a model of prosperity, because it had sufficient (and 
inconvertible) currency to keep its rate of interest low. 11 Law 
asserted it undeniable that a certain quantity of money was necessary 
for current expenses. 12 This included pocket money, money for pur- 
chase of raw materials and goods, and money to build factories. Law 
ignored the classical economic position that in the long run any 
quantity of money serves as well as any other. Instead he estimated 
that the minimum monetary requirement was $15 per capita, i.e., 
$150 million for the country’s 10 million population. In one sense, 
Law agreed with the “hard money” critics of the banking system that 
the banks caused ruin through first encouraging credit and invest- 
ments, and then curtailing their loans and bankrupting their borrow- 
ers. His objection, however, was solely to the curtailment. What was 
needed, he concluded, were permanent loans at low interest, in order 
to increase productive capital and stimulate industry. Contrasting the 
National Currency with a system of bank notes, he declared that 
while banks issued promises to pay specie that they did not have, the 
board would issue notes on the “property of the nation,” notes 
which did not have to be redeemed. While bank notes could be 
refused by other banks and fall to a discount, this could not happen 
to the National Currency, which would be uniform and receivable 
everywhere, including payments to the government. Instead of cur- 
tailing the note issue because of specie drain, the board could rectify 
any deficiency of currency caused by such a drain. 

It is doubtful if Law was actually concerned to have limits on 
excess currency, because to Law such excess was mainly hypotheti- 
cal. He was actually concerned with providing “sufficiency” of cur- 
rency. One of the features of his plan was that the board could 

^Law also cited Russia, where the Emperor had wisely established a 
National Currency Board to provide a new circulating medium for the devel- 
opment of agriculture and manufactures in Russia. “Justinian,” Remarks, p. 34. 
Emperor Peter III had established state banks issuing inconvertible paper in 
1777, and bank issues expanded and depreciated until 1817. See Michael T. 
Florinsky, Russia (New York: Macmillan Co., 1953), vol. 1, p. 567; vol. 2, 
pp. 708ff. 

12 “Justinian,” Remarks, passim. 

Proposals for National Monetary Expansion 


never call in the currency, and, therefore, could never diminish the cir- 
culating medium. This contrasts to the banking system where banks 
may call in their notes at any time. The board could always increase 
the circulating medium if it desired, by lending more, or by buying 
stock (the latter proposal being a rudimentary forerunner of open- 
market operations). The fact that this was considered an important 
advantage by Law demonstrates his eagerness to increase the money 
supply. The sufficiency of circulation would promote all industry, and 
the “nation” rather than the banks would reap the profits from the 
loans. Furthermore, the interest rate (5 percent) would be lower than 
the existing rate, which Law estimated at about 6 Y 2 percent. In 1 820, 
Law estimated the minimum currency needed at $100 million. Such 
an amount would more than double the circulating medium and 
approximately return the money supply to boom levels . 13 

With a lower rate of interest assumed to be an advantage for 
stimulating industry, Law did not discuss whether any limits needed 
to be set in lowering the interest rate. Indeed, he admitted that a 
5 percent rate was chosen only for the purposes of expedience; that 
a 4 percent rate would be far better . 14 To Law, it was self-evident 
that the rate of interest could be lowered by an increase in the quan- 
tity of money; for when the supply of any commodity increased, 
this decreased its “value .” 15 

To advance his plan , 16 Law attributed the depression mainly to a 
deficiency of currency, which caused shopkeepers to lose their mar- 
kets and mechanics to lose employment . 17 Law also declared that his 
monetary expansion plan, not protective tariffs, was the proper cure 

13 Ibid. 

14 Washington (D.C.) National Intelligencer, May 22, May 26, June 1, 1819. 
Law evoked the authority of Arthur Young and Sir Josiah Child in saying that 
low interest rates were the soul of commerce. 

15 Ibid., May 15, 1819. 

16 In early 1818, before the economic crisis had arrived, Law answered a 
critic who had advised that his paper money plan be held in reserve for emer- 
gency times, that it would surely succeed better in time of prosperity. Ibid., 
February 10, 1818. 

17 Ibid„ April 24, 1819. Also April 22, May 1, 1819. 


The Panic of 1 81 9 

for the distress of the manufacturers. To Law, domestic manufac- 
tures were distressed from 

the want of money, for the home manufacturers cannot 
afford to sell on long credits. They must have quick 
returns to pay workmen. I know of manufactures which 
have stopped, not because they were undersold by for- 
eign goods, but solely because they could not get 
money. Money is the means to pay workmen, to set up 
machinery. 18 

Protectionists had pointed out that small handicraft manufactur- 
ers were suffering less from the depression than the large manufac- 
turers. To the protectionists, this was clear evidence that the more 
heavily capitalized manufactures suffered the most, and that there- 
fore a protective tariff was needed for larger capital. To Law, on the 
other hand, the lesson was different: 

When specie diminished, the banks curtail, and the large 
masses of money are . . . diminished; those therefore 
who have to purchase raw materials and to pay two or 
three hundred workmen every week, and who rely upon 
collecting large sums — first feel the want of money. 19 

Elaborating on the benefits from increased money, Law pointed 
to the great amount of internal improvements that could be 
effected with the new money. He decried the slow process of accu- 
mulating money for investment out of profits. After all, the benefit 
was derived simply from the money, so what difference would the 
origin of the money make? And it would be easy for the govern- 
ment to provide money, because the government “gives internal 
exchangeable value to anything it prefers.” All it need do, concluded 
Law, was spend five millions of newly issued currency per year on 

18 Ibid., October 30, 1819. 

19 “Justinian,” Remarks, p. 30. This does not imply that Law was hostile to 
tariffs. Far from it. Indeed, Law fulminated against the competition of cheap 
Asian labor in the form of cotton goods and urged exclusion of these goods 
from the country. Washington (D.C.) National Intelligencer, June 1, 1819; City of 
Washington Gazette, May 12, 1818. 

Proposals for National Monetary Expansion 


public works, and, in a pump-priming effect, “the money thrown 
into circulating would, in the course of a year, enable individuals to 
make a number of improvements also.” 

Other advantages for his plan cited by Law: that national paper 
could not be affected by an external drain, that specie would be used 
to buy goods from abroad instead of “being locked up at home,” and 
that America would be insulated from the fluctuating fortunes of 
foreign gold and silver mines. Law also cited Hume to support the 
advantages for production of increases in the circulating medium. J) 

Law admitted, in answer to critics of inconvertible paper, that his 
paper might depreciate, but he asserted that this was of minor 
importance compared to the beneficial lowering of the interest rate 
and the activation of industry. To those who maintained that a nation 
could satisfy its monetary needs by importing specie, Law retorted 
that this could only happen through a favorable balance of trade, 
which “rarely happens” in any country, particularly a new country, 
which had “so many wants” that it could not develop a large favor- 
able balance. Merchants, furthermore, always preferred importing 
goods, upon which they could make a profit, to importing specie. 

Law’s preference for his plan over the existing banking system 
did not prevent him from preferring bank paper to specie. The 
imperative was to reverse the contraction of the money supply. 
Thus, he commended the various state legislatures for permitting 
banks to continue in operation without paying in specie. 21 In fact, 
Law proposed as an alternative that the Bank of the United States 
convert its existing assets of seven million dollars of 5 percent gov- 
ernment bonds into new non-interest bearing Treasury notes. The 
bank would then use these notes, with the advantage of not being 
acceptable abroad, as a base for a two or threefold expansion of 
credits. 22 Law, however, far preferred his national paper plan to the 
existing system or to loan offices in the separate states. 23 

20 “Justinian,” Remarks, p. 37. 

21 Ibid. The main evil of the banks was their requirement of specie pay- 
ments for their notes. City of Washington Gayette, May 12, 1818. 

22 Washington (D.C.) National Intelligencer, May 19, 1819. 

23 Ibid„ April 1, 1820. 


The Panic of 1 81 9 

One of Law’s most interesting contributions was his attempt to 
grapple with the embarrassing fact that, toward the end of 1820, 
New York City experienced an abundance of money for lending, 
and had low interest rates. This phenomenon presented two diffi- 
culties for Law: it seemed to eliminate the need for Law’s planned 
reduction of the rate of interest, while, on the other hand, the fact 
that the depression still remained seemed to indicate that low inter- 
est was not the sovereign remedy. Law countered that the low interest 
rates in New York were purely temporary and the result of sudden 
remittances by foreigners — particularly from Spain, Portugal, and 
Naples — to take advantage of the high interest rates here, and espe- 
cially, to obtain security for their funds during their domestic politi- 
cal convulsions, “which they may withdraw when quiet is restored.” 
This is an early example of a “hot money” analysis. 24 

Law upheld his plan against an alternative scheme put forward 
by Litdeton Dennis Teackle of Queen Annes County, Maryland. 
Teackle wished to base his proposed national currency on the “solid 
and immovable value” of the nation’s real estate — the valuation to 
be made by a tribunal of lawyers, financiers, and commissioners. 23 
Law countered with the shrewd objection that it would be impossi- 
ble to evaluate accurately all of the nation’s real estate. His major 
complaint was that Teackle envisioned the retirement of the notes 
in ten years, which would again cause severe monetary scarcity. The 
only remedy was a note issue maintained in perpetuity. 26 

A Boston writer attacked Law’s plan, chiefly basing his argument 
on a distinction between “fictitious currency” and “legitimate cur- 
rency.” The latter consisted of idle capital of intrinsic value, or its 
representative. Thus, specie or bank notes backed by actual specie 
deposits or redeemable in specie were legitimate currency. Artificial 
currency was any currency not backed by specie. 27 

24 Ibid., November 28, 1820. 

25 Ibid., October 31, 1821. 

26 Ibid., November 3, 1821. 

27 lbid„ July 21, 1819. The writer was vague on whether 100 percent specie 
backing was necessary for legitimacy, or whether redeemability would suffice. 

Proposals for National Monetary Expansion 


Another plan for a national note issue based on land was pre- 
sented by an anonymous writer in Niles’ Register?^ He advocated a 
maximum note issue of $30 million. Notes would be redeemable in 
gold or silver after sixteen years. They would be loaned at 6 percent 
interest and preferably applied to the development of internal 
improvements. The notes would, of course, be receivable in all dues 
to the government. Bank notes would be redeemable in this new 
government paper, although the bank would also have the option of 
paying in specie. The writer did not advocate that the notes be made 
legal tender. These notes could not depreciate because they would 
be redeemable in public land, possessing “certain” and intrinsic 
value, while gold and silver would revert to their “true character” as 
articles of commerce. Under an inconvertible currency, the writer 
proclaimed, there would be an automatic balancing of foreign trade. 
If imports exceeded exports, then merchants could not obtain 
specie for export as they could under redeemable currency. There- 
fore, foreign exchange would rise above par, prices of imports 
would rise, and imports would diminish in favor of domestic pur- 
chases, while conversely, exports would be promoted by the relative 
fall in their prices. The burden on imports would spur the develop- 
ment of domestic manufactures. The writer was not content to 
assert a new equilibrium exchange rate — and a depreciated one at 
that — as his final conclusion; instead, he maintained that the bal- 
ance of trade would swing to becoming favorable again and the 
exchange rate would revert back to par. He failed to realUe, of 
course, that with the currency inconvertible, there would be no 
mechanism to assure a maintenance of the original par. 

One monetary expansionist, “Agricola,” is interesting for his 
denunciation of state debtors’ relief laws, such as stay and appraise- 
ment, which he denounced as pure “quackery.” 29 All that we really 
needed was money, he said. Let Congress, therefore, give the people 
a circulating medium for internal purposes. Although he signed 
himself “Agricola” from Ontario, New York, the writer conceded 

28 (Anonymous), “The Circulating Medium,” Niles’ Weekly Register 15 
(November 21, 1818): 220. 

29 “Agricola,” in Washington (D.C.) National Intelligencer, January 25, 1820. 


The Panic of 1 81 9 

that he was also a merchant and manufacturer and claimed that the 
lack of circulating medium was oppressing the industrious and the 
middle classes. 

One North Carolinian advocated inconvertible government paper 
while also proposing the abolition of incorporated state banking 30 
Gold and silver were foreign commodities, he declared. Paper was the 
best medium, precisely because no intrinsic property was being 
employed as money. The writer estimated that the total United States 
revenue was $25 million, and that the first issue of government paper 
should also be $25 million. This limitation on issue would insure 
against depreciation of the paper. The issue of notes could be 
stopped by the government whenever they depreciated in relation to 
specie. Also, the government could call on holders of its bills to fund 
them by purchasing interest-bearing government bonds. The writer 
urged that the notes be first used to acquire mortgages on real estate. 
The government’s debt would then be offset by its mortgage assets. 
He envisioned a maximum issue of $50 million. 

Another leading promoter of a national paper plan was the fab- 
ulous merchant and financier James Swan. 31 Swan accepted all the 
arguments of the critics of banks against bank paper. Indeed, he 
went further than Law, asserting that banks should be forced to pay 
their obligations in the same way as private individuals, so that the 
over-speculative banks might pay the penalty for their errors. He 
believed the remedy to be a new type of paper money that would 
not only eliminate the deficiency of specie, but also “give new life 
to our sunken trade, nourish the agricultural industry, create com- 
mercial wealth, and even render gold and silver altogether useless.” 

30 “An Independent Citizen of North Carolina,” in ibid., January 13, 1820. 
Also see “Hominus Amicus” from Baltimore, ibid., May 15, 1819. 

51 Swan was an adventurer and land speculator, who had participated in the 
Boston Tea Party, and later became an agent of the French Republic; he had 
lived in Boston, but the last two decades of his life he made headquarters in a 
French debtor’s prison from which he wrote this pamphlet. His plan was pre- 
sented in his pamphlet, James Swan, An Address to the President, Senate, and House 
of Representatives of the United States (Boston: WW Clapp, 1819), pp. 1-24; 
Dorfman, Economic Mind, vol. 2, pp. 243-46, 310-12. 

Proposals for National Monetary Expansion 


The basis of this paper would be the approximately 800 million 
acres of public land owned by the United States government. Val- 
ued at its legal minimum sale price of two dollars per acre, the gov- 
ernment owned the unalterable and undepreciable capital sum of 
$1.6 billion. On this capital, the government could certainly issue 
$150 million in notes, bearing a 3 percent interest. The government 
would lend its notes in individuals, to merchants on their invento- 
ries, and to proprietors on real estate mortgages. Since the loans 
were to be at 6 percent, and the notes would pay 3 percent to their 
holders, the effect was to charge a rate of 3 percent. The notes 
would be distributed to each state, in proportion to its population, 
and would be receivable at the Treasury and for state land sales and 
taxes. Based on a far greater amount of land capital than on scanty 
specie capital, they could not depreciate; indeed, asserted Swan, they 
would command a premium over specie, since they would bear a 
3 percent interest, and since the Treasury would no longer receive 
specie. According to Swan, this unique interest-bearing feature of 
the new currency was its principal superiority to bank paper, which 
was not interest-bearing and “consequently [there was] no benefit in 
keeping it. Hence everyone sought to employ it, which caused a 
great rapidity in its circulation.” Swan did not even think that a legal 
tender provision would be necessary, since the public would eagerly 
welcome an interest-bearing currency. 

Some plans for a national inconvertible paper were more modest 
than any of the aforementioned, and simply involved the issuance of 
a few million dollars in new Treasury notes, which would be loaned 
to the banks at 5 to 6 percent interest to ward off specie runs/’ 2 

Proposals for an inconvertible federal paper money only fleetingly 
reached the stage of Congressional consideration. One instance was 
the resolution, in late 1819, by Representative Charles C. Pinckney of 
South Carolina, for the establishment of a government paper money 
system. The New York American was outraged. 33 Surely, it warned, 

32 “A Reader from North Carolina,” Washington (D.C.) National Intelligencer, 
August 11, 1819. Also ibid., February 11, 1819, and Wolcott, passim. 

33 N ew York American, December 15, 1819. Also see the criticism in the 
New York Daily Advertiser, January 17, 1820. 


The Panic of 1 81 9 

Congress could not entertain such a proposition for a moment. It 
would inevitably banish specie from the country, depreciate the cur- 
rency, greatly increase the cost of living, and defraud the honest 
debtor. The country, asserted the American, had sufficient specie in 
circulation and had succeeded in bringing prices down again “to their 
just level,” injuring in the deflationary process only the speculators on 
credit. Naturally, these speculators would like to return to the “system 
of fictitious values” built upon immense paper issues. 

Although no direct action was taken on Pinckney’s proposals, 
more support was given in the House for a serious inquiry into the 
possibility of a government paper plan, and the House passed a res- 
olution in July, 1819, requesting the Secretary of the Treasury to 
report measures “to procure and retain a sufficient quantity of gold 
and silver coin in the United States, or to supply a circulating 
medium, in place of specie.” The conservative press was shocked at 
this resolution, which formed the basis for Secretary Crawford’s 
famous Report on the Currency of the following year. 34 One of the 
most bitter attacks was leveled by the fiery William Duane, publisher 
of the Jeffersonian Philadelphia Aurora, and a powerful figure in 
Pennsylvania politics. In an open letter to Langdon Cheves, presi- 
dent of the Bank of the United States, Duane, in his typically vitri- 
olic style, charged that Congress was about to set up a new Conti- 
nental currency, the object of which was to ensure the supremacy of 
the villainous Bank of the United States. 31 Hezekiah Niles went so 
far as to suspect Crawford of secredy plotting the establishment of 
a paper system. 36 

Crawford’s Report was sent to the House the following Febru- 
ary. 17 It is true that he concluded against an inconvertible paper plan 

- ,4 New York Daily Advertiser, July 30, 1819. 

^Philadelphia Aurora, August 19, 1819. Duane, by the way, was certainly 
an outstanding exception to the general “era of good feeling” and support of 
President Monroe. He fought Monroe’s re-election with great bitterness. 

36 Niles’ Weekly Register 16 July 31, 1819). 

- ,7 On February 24, 1820. Reports of the Secretary of the Treasury of the United 
States (Washington, 1837), vol. 2, pp. 481-525. Also reprinted in U.S. Congress, 
American State Papers: Finance 3, no. 582 (February 24, 1820): 494-515. 

Proposals for National Monetary Expansion 


and that this ended any Congressional action on the subject. How- 
ever, he did present a plan which he considered the best of any pos- 
sible paper currency scheme. This plan has been unduly neglected 
by historians, for it presented many interesting facets and aroused 
considerable controversy in the contemporary press. Crawford, far 
from being a straightforward enemy of paper expansion, through- 
out his report found himself in a quandary on the paper money 
issue. He first stressed the disadvantages, and then the advantages, 
of a national inconvertible currency . 38 On the one hand, he recog- 
nized that paper issues would drive specie out of the country and 
lead to a rapid depreciation in the value of the currency. On the 
other hand, he maintained that an increase of paper issues increased 
monetary demand for goods, and hence caused production to rise 
beyond the level it would attain under a purely specie currency. 
Therefore, the current sudden contraction of paper money not only 
sharply lowered prices and injured debtors but also hampered 
enterprise and production. He acknowledged that falling prices ben- 
efited the export market, but pointed out that they also depressed 
the prices of all non-exportable goods, such as land and houses. 
Crawford, in fact, far more sophisticated than Law or the other 
national currency advocates, recognized that falling prices were far 
worse for enterprise than simply low prices. Stated Crawford: 

A manufacturer will not hazard his capital in producing 
articles, the price of which is rapidly declining. The mer- 
chant will abstain from purchases, under the apprehen- 
sion of a further reduction in price, and of the difficulty 
of revending at a profit. 

The advantage of paper money, then, was to stimulate production 
and enterprise, particularly in contrast to the wringer that the specie 
system was currently imposing on the economy. 

The paper money plan outlined by Crawford was as follows: The 
government would issue Treasury notes and put them into circula- 
tion in exchange for specie or for government bonds (“stock”) at 

38 Law, in fact, maintained that Crawford privately agreed with his mone- 
tary views. Clark, Greenleaf and Law, p. 320. 


The Panic of 1 81 9 

par. The holder would have the option of converting the notes into 
government bonds (“stock”) at any time. These bonds would be yield- 
ing a low rate of interest. The banks would be completely relieved 
of any obligation to pay their notes in specie; instead they would be 
obliged to redeem them in Treasury notes. As a check on banks, 
only the national currency would be receivable in payments to the 
government. Furthermore, the banks would be required to buy gov- 
ernment bonds on the latter’s request. 

Now, suggested Crawford, suppose the demand for money in 
the economy rose. This would push the market rate of interest 
above the rather low rate of interest set on government bonds. Indi- 
viduals and banks would then exchange their government bonds for 
the national currency at government offices, and relend the money 
at the higher market value rate of interest. In this way, by issuing 
more currency as the demand increased, the market rate of interest 
would be driven down to the official rate on government bonds. 
Conversely, suppose that the demand for money fell. Then, the mar- 
ket rate of interest would fall below the rate of government bonds; 
holders of the paper currency would exchange it for government 
bonds in order to reap the higher interest return on bonds. The gov- 
ernment would retire the currency handed in, the supply of money 
in circulation would fall, and the market rate of interest would rise 
to that on government bonds. 

Crawford, by postulating a paper currency convertible into gov- 
ernment bonds, expected that in this way the supply of currency 
would be automatically regulated so as to set the market rate of 
interest equal to the rate paid on government bonds. Further, the 
supply of currency would be regulated by the demand for it. Under 
this plan, Crawford believed that there could be no excessive issue 
of the money supply. If the issue of paper became excessive, the 
rate of interest on the market would fall, and, as we have seen, hold- 
ers of paper would exchange it for government bonds, reducing the 
supply of paper in circulation. Thus, both the supply of currency 
and the rate of interest would be automatically regulated. 

Crawford finally rejected his own plan, with considerable reluc- 
tance. He did it primarily because the record of governments 

Proposals for National Monetary Expansion 


showed that they could not be trusted with paper money, that they 
would inevitably abuse this power through excessive issues, and bur- 
den the economy with all the consequent evils of inflation and 
depreciation. His second reason was the location of the major mon- 
etary troubles in the South and West, which contributed a large part 
of the federal revenue through public land purchases, while the gov- 
ernment spent most of its revenue in the East. As a result, there was 
a permanent drain of the currency from the West and South, a drain 
unjustly ascribed in those regions to the Bank of the United States, 
and this would continue whether the currency was specie or paper. 
So the regions with the greatest deficiency of currency could not be 
helped by a national paper. There was no alternative but to conclude 
that the national suffering must continue until property values and 

wages had fallen to where the banks would be able generally to 


resume specie payments.’ 

Crawford’s final rejection of a national paper scheme was no 
great inspiration to the hard money stalwarts, who resented his doc- 
trinal concessions to inconvertible paper, and his proffered, if 
finally rejected, plan for a national currency. Thus, William Duane, 
of the Philadelphia Aurora, simply dismissed the plan as a “tissue of 
absurdities.” 4 " More interesting was the reaction of Thomas Ritchie, 
publisher of the important Richmond inquirer, fountainhead of 
Virginia Jeffersonianism, laisse^faire, and hard money doctrine. 
Ritchie penned a very intelligent critique of the Crawford Report, 
including its sections on the causes of the crisis, in three articles in 
the Enquirer . 41 Crawford admitted, began Ritchie, that no paper 
money could succeed unless protected from excessive issue to the 
same extent as specie, with the latter’s universality of use through- 
out the world. Ritchie maintained that only specie or paper con- 
vertible into specie could avoid depreciation. Specie-convertible 
paper was protected from excess issue because an external drain 

35 On the necessity of continued diminution of circulation see Philadel- 
phia Aurora, October 2, 1821. 

^Philadelphia Aurora, October 11,1 820. 

41 “On Crawford’s Currency Report,” Richmond Enquirer, March 21, 1820; 
March 28, 1820; April 7, 1820. 


The Panic of 1 81 9 

would “restore the equilibrium.” Crawford, on the other hand, sug- 
gested substituting for this specie convertibility a new type of con- 
vertibility — into funded government bonds. But in contrast to the 
relative stability of the value of specie, the universal medium, the 
value of government bonds fluctuated very rapidly. Their value, 
continued Ritchie, was affected by numerous factors: the prospects 
for profit; the quantity of bonds on the market; the status of the 
government debt; and the prospects of war or peace. Crawford, for 
example, admitted that in times of war or emergency, his proposed 
currency would collapse completely, whereas specie always rose in 
public esteem under crisis conditions. 

Ritchie then turned to the automatic regulatory feature of the 
plan that had so recommended it to Crawford. First, Crawford had 
contended that an excessive paper issue would cause interest rates 
on the market to fall below the interest rates on government bonds, 
and thus impel holders of currency to convert their holding into 
bonds. But this argument assumed that the “rate of interest neces- 
sarily depends on the quantity and value of money in circulation.” 
This, asserted Ritchie, was clearly incorrect. In Ricardian fashion, he 
declared that the value of money and the rate of interest depended 
on different principles. The former was determined by the propor- 
tion between the “circulating medium and the quantum of 
exchanges.” The latter depended on the “real or supposed profit of 
capital; the profit of capital depends on the proportion between the 
quantity of capital and the demand for its profitable enjoyment.” A 
fourfold increase in the money supply, said Ritchie, would raise 
prices by four and reduce the value of money by one-fourth, but it 
would not affect the rate of interest. The amount of interest and the 
amount of principal on any transaction might increase fourfold, but 
this need not change the rate. 

To the contention that the rate of interest depended upon, and 
moved inversely to, the quantity of money in circulation, Ritchie thus 
countered with a “real” theory of interest, and movements in the 
quantity of money affecting only prices; if they affected all prices 
equally, then it was clear that a ratio, such as the rate of interest, 
would not be altered. He deduced, therefore, that it was possible to 

Proposals for National Monetary Expansion 


have excessive currency in circulation, without an increase in the 
profits of capital, and hence without effecting a change in the rate 
of interest. On the other hand, the supply of currency might be 
deficient, while the interest rate was low, because a poor prospect 
for profit had diminished the demand for capital. Ritchie concluded 
that interest need not be low when money was excessive; in fact, it 
was possible for excessive currency and boom conditions to be 
accompanied by a quickening of the spirit of enterprise and an 
increase in the prospects for profit. In that case, the bonds “would 
be converted into currency to be employed in active enterprises.” 
Thus, Crawford’s scheme was likely to have an aggravating, rather 
than a stabilizing, effect on excessive currency, and to propel the 
currency to a great stage of depreciation. Indeed, Ritchie declared, 
this was exactly what had happened in the recent boom before the 
depression. People had borrowed at high interest from the banks in 
order to acquire depreciated bank notes. This forgoing of fixed 
interest return to obtain money was certainly likely to occur under 
the Crawford national currency plan. 

Similar perversity, added Ritchie, would occur in bad times. 
When the currency was deficient and the prospects for profit low, 
market interest rates would also be low, and people would tend to 
convert their currency into government bonds, thus aggravating the 
deficiency of currency. 

Ritchie was not content to stop at this point in his penetrating 
analysis of the Crawford paper plan. He added that advocates of 
the scheme might reply that the government could always keep 
watch on the fluctuations in the prices of government bonds, and 
that, instead of maintaining convertibility into bonds at par, it could 
continually change the rates of convertibility in accordance with 
the rates of interest. To this early version of a “compensated dol- 
lar,” Ritchie replied that the scheme was illusory. “A thing so vari- 
able as the real or supposed profits of capital, as variable as the 
value of funded stock (government bonds); things — dependent 
upon such a variety of causes, can never be defined with sufficient 
accuracy to answer the purposes of a standard.” This “standard” 
was always changing in value, being affected by changes in many 


The Panic of 1 81 9 

factors; especially the supply of government bonds, and the supply 
of and the demand for capital. These changes would be too numer- 
ous and subde to be detectable by the government. The best course 
was to leave gold and silver alone; they would have infinitely fewer 
fluctuations than these “paper thermometers.” Crawford’s plan was 
no better than all the other paper schemes and we must return to 
the use of specie, the universal medium, which ebbed and flowed 
from one country to another according to its excess or deficiency. 

If Crawford’s doctrinal concessions to the inflationists angered 
the pure hard money advocates, his conclusion against paper and in 
favor of continuing deflation until convertibility was restored galled 
the inflationists. Thomas Law was moved to write a pamphlet specif- 
ically devoted to a critique of the Crawford Report . 42 Law attacked 
the widespread phobia against depreciation of currency; admittedly 
paper issues had a tendency to depreciate, but they also activated 
industry. He praised the many state legislatures for permitting banks 
to operate without having to redeem in specie. Law did not actually 
attack Crawford’s paper proposal at length, but he took the occasions 
to present his own paper plan in detail. 

James Madison, Ritchie’s fellow Virginian, was willing to con- 
cede the theoretical possibility of a regime of paper money rigidly 
limited by the government. He added, however, that in practice, 
when money depended on the discretion of government, it would 
be bound to depreciate. Madison declared: 

It cannot be doubted that a paper currency rigidly limited 
in its quantity to purposes absolutely necessary, may be 
made equal and even superior in value to specie. But 
experience does not favor a reliance on such experiments. 
Whenever the paper has not been convertible into specie, 
and its quantity has depended on the policy of the gov- 
ernment, a depreciation has been produced by an undue 
increase, or an apprehension of it. 43 

42 “Justinian,” Remarks, p. 40. 

43 Madison to C.D. Williams, February 1820. James Madison, Writings, Gail- 
lard Hunt, ed. (New York: G.P. Putnam’s Sons, 1910), vol. 9, pp. 26-27. 

Proposals for National Monetary Expansion 


A general attack on paper money schemes was leveled by 
Hezekiah Niles. Niles hailed the opportunity brought by the depres- 
sion to purge the country of speculation and excess bank paper, 
provided that paper money schemes did not interfere. Money would 
then rise to its legitimate value. 44 As to the debt-burdened farmers, 
they deserve to reap the consequence of their imprudence. 45 Niles 
further pointed out that widespread complaint of “scarcity of 
money” always arose after the country had been flooded with paper, 
and the result was a scarcity of genuine money. 46 Hard-money pam- 
phleteer “Seventy-Six” attacked the thesis of scarcity of money at 
length and added that anyone could purchase currency by selling his 
labor or his property. He also pointed out that “Whatever quantity 
of money exists ... is used to the full; a greater or less quantity will 
simply lower or raise in exchange.” 47 

Monetary proposals did not loom large in the Congressional 
arena during the depression. In the spring of 1819, proposals for 
suspension of payment by the Bank of the United States developed 
into scattered demands for a special session of Congress, to compel 
the Bank of the United States to suspend payment. The National 
Intelligencer scoffed at these demands as holding up false hope for a 
remedy — a remedy which would only aggravate the monetary dis- 
ease. 48 The demands for a special session came to naught. 

Another simple remedy was advanced to end the external specie 
drain: the prohibition of specie exports. A prominent advocate of 
this measure was Mordecai Manuel Noah, editor of the New York 
National Advocate. At the beginning of the panic, he stated simply 
that 1818 had seen a specie drain abroad of over $6 million, and that 
prohibition would end the drain and restore confidence in the bank- 
ing system. Since almost all of the specie flowed to the East Indies, 

44 Niles’ Weekly Register 15 (January 9, 1819): 364. 

45 Ibid„ 17 (December 11, 1819): 227. 

46 Ibid., 16 (July 31, 1819): 320. 

47 “Seventy-Six,” Cause of and Cure for Hard Times (New York, 1819). 

48 Washington (D.C.) National Intelligencer, May 19, 1819. Also the Norfolk 
Herald, May 29, 1819. 


The Panic of 1 81 9 

Noah proposed that each vessel to the East Indies be limited to a 
certain quota of trade, and that imports of East India goods be lim- 
ited to the amount “required for general consumption.” 49 Another 
writer, “Solon,” coupled prohibition with the suggestion that the 
banks end their hapha2ard clearing operations and cooperate by not 
calling on each other daily for specie. This would permit expansion 
of the circulating medium. 1 " The call for prohibition of specie 
exports was promptly challenged. “H,” writing in the National Intel- 
ligencer and reprinted and specifically endorsed by the New York 
Ga^ette^ a very staid organ usually devoid of politics, charged that 
the proposal to prohibit export of specie was a “stale experi- 
ment . . . universally discredited by . . . every standard writer on 
political economy.” It would aggravate the evil of depression by 
spreading uneasiness among merchants. Furthermore, such a law 
would cause the “moneyed men to hoard every bit of gold and sil- 
ver that they could obtain.” Stopping the East India trade would be 
quite harmful. The India trade provided “an immense advantage,” 
supplying us necessaries such as tea and sugar, and goods which we 
exported to Europe at a profit . 52 

“Virginian” compared the proposal for prohibiting the export of 
specie to Spain’s prohibition in the era when specie was its main arti- 
cle of wealth, after the mining discoveries in the new world . 53 Specie 
would always be exchanged for “more essential articles” needed for 
use and would seek out those countries which furnished the best 
and cheapest supply. If the United States could compete, it would 

49 New York National Advocate, September 7, 1818. Also see “Solon,” 
Philadelphia United States Gazette, December 24, 1818. “Solon” attacked the 
East India trade on the familiar ground of imbalance and absence of possible 
reciprocity. Also see “Franklin,” Baltimore Federal Republican, July 23, 1819, 
“Hominius Amicus,” Washington (D.C.) National Intelligencer, May 15, 1819; 
Niles’ Weekly Register 15 (December 5, 1818): 241. 

50 “Solon,” New York Gazette, December 9, 1818. 

51 “H” in New York Gazette, December 10, 1818. 

52 These arguments were reminiscent of the ones used by the defenders of 
the East India trade in Britain in the seventeenth and eighteenth centuries. 

53 “A Virginian,” Washington (D.C.) National Intelligencer, January 16, 1819. 

Proposals for National Monetary Expansion 


have no deficiency of specie, as “Piano E. Sano” expressed it. 
Specie, like every commodity, contains a self-regulating principle . 54 
A superfluity in one region sought a better exchange elsewhere. The 
specie drain was clearly caused by an excess of bank paper, which 
made part of the specie superfluous. He advocated as a remedy the 
strict enforcement of specie payments by the banks. 

One writer relied primarily on Adam Smith for his attack on 
export prohibition . 13 “Hamilton” quoted verbatim from Smith’s 
attack on the concept of scarcity of money, in which Smith had 
asserted that the so-called scarcity was simply a difficulty of bor- 
rowing or selling goods for money and the results of previous mis- 
judgments and overtrading . 56 

The export of specie held no terrors also for those who were ready 
to establish an inconvertible paper system. Thus, “Anti-Bullionist” 
stated that with specie demonetized, there would be no reason at all 
to prohibit the profitable specie trade with the West Indies, since 
specie would simply be another commodity . 57 

A curious and unique argument against prohibition of specie 
export was delivered by “N.O.” in the New York Evening Post ; 58 He 
went to the opposite extreme and declared that the cause of the 
depression was an excess amount of specie, and therefore the remedy 
was to encourage the export of specie rather than prohibit. The author, 
however, failed to develop the reasoning behind his position. 

In Congress there was considerable interest in the possibility of 
prohibiting the export of specie. Senator Talbot of Kentucky, 
chairman of the Senate Finance Committee, reported negatively 
on the question of prohibiting the export of coin. He cited his- 
tory to demonstrate the impotence of all such legislative prohibi- 
tions, even under the most despotic governments. Talbot took this 

54 “Piano E. Sano,” City of Washington Gazette, reprinted in the Boston New 
England Palladium, January 18, 1820. 

-‘’-‘’“Hamilton,” Philadelphia United States Gazette, December 9, 1818. 

56 Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations 
(New York: Modern Library, 1937), p. 406. 

57 “Anti-Bullionist,” Enquiry, p. 41. 

58 “N.O.” in New York Evening Post, February 6, 1819. 


The Panic of 1 81 9 

position despite the advocacy of export prohibition by Senator 
John Forsyth of Georgia, another member of the committee. Tal- 
bot declared that an unfavorable balance of trade would always 
cause a drain of specie. The best course, he concluded, was not to 
impose any such regulation but to let trade work itself without leg- 
islative restrictions. 59 The cue had been given to the finance com- 
mittee a month earlier by Secretary of the Treasury Crawford, in 
response to a House request for his opinion on this problem. 
Crawford contrasted such practices of the dark ages to the 
“progress of reason” and “the advancement of the science of 
political economy in the seventeenth and eighteenth centuries, and 
its immutable laws.” 6 " The flow of specie, stated Crawford, 
depends upon the general balance of trade, which had become 
unfavorable due to the expansion of bank notes and bank credit. 
No legislative interference was necessary, except to enforce the 
obligation of the banks to redeem their notes in specie on 
demand. Apart from the specie drain, another problem con- 
fronted the nation in this period — the disappearance of gold coin. 
This drain of gold resulted from the official American exchange 
rate between gold and silver undervaluing gold on the world mar- 
ket. Secretary Crawford and House committees, in 1819 and 1821, 
recommended a revaluation of gold to a ratio of approximately 
151/2 to 1 of silver, instead of 15 to 1. A House committee in 1821 
reported that the United States had minted $6 million in gold but 
that practically none was being retained in this country. 61 

On March 3, 1819, Congress passed an act ending the legal ten- 
der quality for foreign gold coins. In November of that year, it 
failed to extend the legal tender quality as it had in the past. French 
and Spanish silver coins, however, continued to be legal tender. The 
act injured the Southwest, the major point of import for foreign 

59 U.S. Congress, American State Papers: Finance, 3, no. 549 (January 25, 1819): 

60 Crawford to Representative Eppes. Finance Committee, December 29, 
1818. Annals of Congress, 15th Congress, 2d Session, pp. 181-84. 

^'Report of House Committee, U.S. Congress, American State Papers: 
Finance 3, no. 614 (February 2, 1821): 660. 

Proposals for National Monetary Expansion 


gold coin. The General Assembly of Louisiana, led by David C. 
Ker, Speaker of the House, and Julien Pryches, President of the 
Senate, sent a resolution to the Senate in April, 1820, attacking the 
action for blocking a large flow of specie imports. The Assembly 
estimated that elimination of the legal tender provision, added to 
cutbacks in Mexican mining output due to the current revolution 
against Spain, had diminished the influx of specie into New 
Orleans by a half million dollars per year, which “flowing into cir- 
culation would have . . . diminished the general embarrassments 
under which our commerce labors.” 62 

One fleeting proposal was that Congress devalue the dollar to 
ninety-six cents. It was mentioned, though not identified further, by 
the astute New York writer “Senex,” who attacked such a proposal 
as injuring fixed income groups. Said “Senex”: “The stockholders, 
landowners and annuitants and all persons having fixed income, 
would suffer a diminution of income to the extent of 4 percent, 
while merchants, manufacturers, and traders would increase the 
prices of the articles in which they deal.” 63 

Surveying the state and national proposals, the expansionist 
argument ran as follows: the nation is suffering from a “scarcity of 
money”; the banks unaided are in no position to stop contracting or 
to expand currency; therefore the government should free the mon- 
etary system from the limitations of specie payment and permit 
expansion of inconvertible paper. The nation needed more cur- 
rency, and government was the agency best able to provide it. 
Debtors would be relieved as the new notes were loaned to them 
and would be aided by the consequent price increases. 

The expansionists also maintained that an increase in the money 
supply would bring about a low rate of interest — one of the essen- 
tials of prosperity. This view was grounded, of course, on an 
assumed inverse relation between the quantity of money and the 

62 U.S. Congress, American State Papers: Finance 3, no. 591 (April 17, 1820): 
530. Also see A. Barton Hepburn, A History of Currency in the United States (New 
York: Macmillan Co., 1915), pp. 46f£ 

63 “Senex,” New York D aily Advertiser, March 19, 1819. 


The Panic of 1 81 9 

rate of interest. In keeping with this view, some writers elaborated 
plans to stabilize simultaneously the interest rate and the quantity of 

Restrictionists replied that the quantity of money determines its 
value, or purchasing power, and not the rate of interest. Interest 
rates were determined by prospects for profit on investments. 

Restrictionists, on the other hand, averred that any increase in 
paper money would aggravate rather than cure the depression. Most 
of this group laid the basic cause of the depression to a monetary 
cycle of expansion and contraction. Not only would a present 
expansion renew the process but the inconvertible notes were 
bound to depreciate, wreaking further havoc and postponing recov- 
ery. The emission of inconvertible paper, therefore, would not really 
increase the effective money supply. The only cure for the depression 
from the monetary side was rigid enforcement of specie payment, 
permitting a return to thrift and a liquidation of unsound bank 
notes and business positions. This point of view was common to 
practically all the opponents of inconvertible paper. Some restric- 
tionists added that bank notes were also excessive because they kept 
the price of American export staples too high for competition in 
world markets. Enforcement of specie payments and ensuing con- 
traction were necessary to reduce export prices and revive the 
export trade. To this argument, some inflationists offered two 
ingenious objections. One was that higher domestic prices might 
indeed reduce exports in physical terms, that they would still increase 
the monetary value of exports. Another was that contraction would 
also cause a fall in the prices of non-exportable goods such as land and 
houses, and that a fall in such prices would not stimulate exports. 

Confidence was another key point in dispute. The inflationists 
urged the equivalent of pump-priming, stressing that note emis- 
sions would restore confidence, thereby inducing money out of idle 
hoards and into credits and investments. As debtors were relieved, 
creditors would gain confidence, lend their money again, and recov- 
ery would ensue. To the restrictionists, on the other hand, confi- 
dence depended upon strict maintenance of specie payment. Strict 
specie payment would restore industry and economy and bring back 

Proposals for National Monetary Expansion 


confidence, drawing hoarded specie back into circulation. To the 
inflationist’s contention that new loans to debtors would bolster 
general confidence, some hard money writers countered that lack of 
confidence and hoarding were not caused by purely psychological 
factors, but rather by the objective lack of good security available. 
This could only be remedied by enforcing specie payment and liq- 
uidating unsound banking and credit positions. They also replied to 
advocates of an increased velocity of circulation that increased 
velocity of money would only further depreciate the paper currency. 

The depreciation issue was, indeed, the main problem for the 
expansionists; it was the main burden of the opposition attack and 
the most difficult to answer. Some expansionists conceded that the 
notes might depreciate and that this would be troublesome, but 
upheld the far superior advantages of an increased money supply. 
Other advocates were much bolder and frankly hailed depreciation 
as a desirable development. Within each state, expansionists pro- 
claimed the advantages accruing to that state from building up a 
state-wide “home” market. Money would be retained to circulate at 
home, increasing the rapidity of circulation of the notes. Interstate 
debtors would be paid in farm produce instead of money, and this 
would help develop the home market for the state’s farm produce. 

Other expansionists, conversely, upheld as their ultimate goal the 
maintenance of a stable value of money. Instead of a vague policy 
of endless expansion, they hoped for a stabilization of money and 
prices after the current contraction had been offset. These writers 
reminded the specie advocates that specie also fluctuated in value. A 
truly stable money could only be obtained by a limited, regulated 
issue of inconvertible paper by the government. Some pursued the 
old will-o’-the-wisp of a money based in some way on the land val- 
ues of the country. The notes, they alleged, would not depreciate 
because they would be backed by appraised public land holdings. 
The hard money writers countered this criticism of specie by admit- 
ting that while theoretically the government could issue and main- 
tain a currency more stable than specie, in practice governments 
always tended to overissue paper. 


The Panic of 1 81 9 

Against the protectionist emphasis on higher tariffs as a cure for 
the depression, the inflationists argued that manufacturing was 
depressed, not from lack of markets but from lack of money. It was 
lack of money that prevented the manufacturer from buying raw 
materials, hiring workers and constructing plants. 

In a sense, this clash of emphasis was a forerunner of the “Aus- 
trian” vs. the underconsumptionist theory of the crisis, both of 
which were to come to the fore in the depression of the 1930s. For 
the underconsumptionists stressed the cause of the crisis to be lack 
of consumer markets for products, while the Mises-Hayek theory 
blamed the crisis on a shortage of saved capital. In the panic of 
1819, the protectionists stressed the lack of consumer markets 
abroad and the necessity for building up a market at home. The 
inflationists, on the other hand, stressed the shortage of money cap- 
ital available to manufacturers as a cause of the crisis. Curiously, the 
policy prescriptions of the two groups were diametrically opposed 
rather than parallel. For the underconsumptionist of 1819 believed 
that consumption would be stimulated by tariffs, while the under- 
consumptionist of a later day urged monetary expansion as the 
remedy. On the other hand, the remedy proposed for the shortage 
of money capital was monetary inflation in 1819, encouragement of 
savings and thrift in the 1930s. The crucial difference seems to be 
that the inflationists of the early period saw monetary expansion 
primarily as a way of providing capital, whereas the inflationists of 
the twentieth century saw it as a means of stimulating consumption, 
increased investment following as a consequence. 

The hard money forces denied that a scarcity of money existed. 
After all, money could always be purchased on the market. And if a 
scarcity of money did exist, it was a scarcity of genuine money — of 
specie — and this scarcity would continue until specie payments were 
fully restored. 

With the economic argument conducted so often on so high a 
level, one might wonder why there were virtually no proposals for 
devaluating the dollar to account for the higher price levels in rela- 
tion to specie. It must be remembered, however, that there were 

Proposals for National Monetary Expansion 


scarcely any advocates of such a course in Great Britain at this 
time — or even a hundred years later. 

The debates over proposals for nationwide monetary expan- 
sion strengthen our previous conclusions on the absence of rigid 
geographical or class lines in the inflation controversies. Certainly 
the leading inflationist, Thomas Law, one of the most influential 
citizens of Washington, was the opposite of a poor agrarian. 


Restricting Bank Credit: 
Proposals and Actions 

Contrasting to proposals for expanding the money supply were 
suggestions for restricting bank credit such as placing curbs on the 
issue of bank notes or requiring banks to redeem in specie. They 
grew out of the grave problem of the defaulting and suspending 
banks, and of the widespread depreciation of their notes. The impe- 
tus came from both a belief that sounder banking would cure the 
panic by placing monetary and banking affairs on a firmer basis and 
the desire to prevent unsound bank credit expansion, and subse- 
quent depression, in the future. 

Secretary of Treasury Crawford, despite his toying with the idea 
of inconvertible paper, typified the opinion of those who wished to 
restrict banks and bank credit. In his Currency Report , 1 he declared 
that in order to return to a specie convertible basis, superfluous banks 
must be eliminated. Banks should only exist in the principal com- 
mercial cities of each state. Small denomination note issues should be 
prohibited and banks should discount “nothing but transaction [com- 
mercial] paper payable at short date .” 2 The maximum amount of 
these discounts should equal the total of savings and deposit 
accounts and half the paid-in capital. Then the banks would always 
be able to maintain convertibility. The present system of banking, 

Crawford, Report, p. 15. 

2 Also see “Agricola,” in Washington (D.C.) National Intelligencer, April 21, 
1819, December 31, 1819; January 11, 1820; and “A Farmer,” March 25, 1819. 



The Panic of 1 81 9 

Crawford declared, had banished specie by issuing paper in excess of 
the demand for transmitting funds and had fostered extravagance, 
idleness, and the spirit of gambling. Crawford stated that restraints on 
the banks were a responsibility of the state legislatures, although he 
conceded that the federal government had contributed to the spirit of 
speculation by granting credit on public land sales and through the 
extension of credit by the Bank of the United States. 

Banks were largely state responsibilities. And so the problem of 
the banks was thrashed out largely on the state level. In Georgia, the 
legislature voted in late 1818 to penalize any incorporated bank 
refusing to pay specie on demand, and imposing a 2 percent per 
month interest penalty. This followed the defeat of a 3 percent per 
month interest penalty proviso in a bill to incorporate the new Bank 
of Darien. Another important measure passed in the same ses- 
sion — prohibition of the circulation of notes of unchartered pri- 
vate banks and of the issue of small denomination notes. 3 In 1 820, 
Georgia passed an act requiring annual reports from the banks, but 
it proved ineffectual. 4 

One of the methods of restraining bank credit expansion was to 
reject incorporations of new banks or to insert compulsory specie 
payment clauses in their charters. An indication of popular opinion 
was the presentment of a grand jury of Jasper County, a rural 
county southeast of Atlanta. The presentment asked for no further 
additions to bank charters. 3 The Georgia legislature turned down 
several applications for new banks. It rejected a charter of a pro- 
posed Agricultural Bank of the State of Georgia by a two-to-one 
vote. This bank would have had an authorized capitalization of $1 
million. The bank was rejected even after the charter was amended 
to include an absolute specie paying clause. 

’Georgia General Assembly, Journal of the House of Representatives, 1818—19 
(December 1, 1818): 56; (December 10, 1818): 76ff. For an attack on exces- 
sive bank paper, see Washington (Ga.) News editorial reprinted in the Wash- 
ington (D.C.) National Intelligencer, August 4, 1821. 

4 Heath, Constructive Liberalism, p. 188. 

5 Niles' Weekly Register 15 (September 19, 1819): 59. 

Restricting Bank Credit: Proposals and Actions 


The Georgia legislature also rejected by a similar majority a bill 
to authorize the Marine and Fire Insurance Company of Savannah 
to issue its own notes and discount promissory notes. On the other 
hand, it passed the charter of a new bank at Augusta, over opposi- 
tion, and enacted a charter for the Bank of Darien without penaliz- 
ing failure to pay in specie . 6 7 

Virginia was a leading stronghold of hard-money opinion. Its 
leading statesmen, such as Thomas Jefferson, attacked any issue of 
bank paper beyond the supply of specie. As we have seen in the case 
of the Crawford Report, Thomas Ritchie, editor of the Richmond 
Enquirer, used sophisticated economic arguments to attack any sug- 
gestion of inconvertible paper schemes. Typical of Virginia opinion 
was an Enquirer editorial laying the blame for the crisis squarely at the 
doors of the banks. The only remedy was for the parasitic banks to 
be eliminated, with industry and economy allowed to effect a cure . 8 
Ritchie also urged that if bank paper be permitted to continue in 
existence, there at least be vigorous restrictions on all banks, whether 
state or national, private or incorporated. Small denomination notes 
must be prohibited and paper must always be convertible into specie. 
The least reluctance to do so should forfeit the bank’s charter . 9 

A writer from Petersburg, in southeastern Virginia, blamed the 
current plight on paper money and cited the French economist, 
Destutt de Tracey (whose work was being translated under the 
supervision of Thomas Jefferson), to the effect that when a mer- 
chant could not pay his debts, the best he could do was liquidate and 
to become bankrupt quickly . 10 

6 Georgia General Assembly, journal of the House of Representatives, 1 81 8 
(November 18-20, December 1, 1818): 31-40ff. 

7 Also see Ambler, Thomas Ritchie, p. 76. 

8 Reprinted in Philadelphia Union, June 4, 1819. Also see the Richmond 
Enquirer, July 16, 1819. 

9 “On Crawford’s Currency Report,” in Richmond Enquirer, March 21, 1820. 

10 Washington (D.C.) National Intelligencer, March 2, 1819. 


The Panic of 1 81 9 

Another point of view was expressed by “A Virginian.” He sug- 
gested the abolition of all incorporated banking, instead placing 
reliance on private banks, the owners of which would be fully liable 
for their debts. Such banks, he declared, “cannot overtrade, that is, 
issue more paper than the market requires; their credit will not 
exceed its just limits.” 11 

Some writers, however, sounded a note of caution, stressing that 
bank note contraction should take place slowly, so as not to disrupt 
the economy unduly. 1- 

A unique monetary plan was offered by Spencer Roane, the great 
Chief Justice of the Virginia Court of Appeals and the leading foe, 
on behalf of states’ rights, of Justice John Marshall’s loose con- 
structionist decisions. 1 3 Roane began by asserting that “banking is an 
evil of the first magnitude,” and in this sentiment he claimed the sup- 
port of prevailing opinion throughout the United States. However, 
bank paper could not be eradicated and a return made to pure specie 
without causing “widespread ruin and distress.” How, then, to 
reform the banks? As long as they remained in existence, they must 
be controlled. The Bank of the United States was not the proper 
instrument for this control, for it possessed the nationwide power of 
increasing or diminishing the circulating medium at will. The United 
States Bank had a far greater potential for harm than did the state 
banks. On the other hand, the state banks needed a general central 
control, to produce uniformity of action and confidence in their 
issues and to see that they redeemed their notes. As a substitute for 

11 “A Virginian,” City of Washington Gazette, December 22, 1818. “Philo- 
Economicus” cited Adam Smith in support of the abolition of corporate 
banking. The reference was erroneous, since Smith had expressly asserted 
the advantages of the corporate form for the banking business. “Philo- 
Economicus,” Richmond Enquirer, June 1, 1819; Adam Smith, Wealth of 
Nations, pp. 714-15. 

12 “Quaesitor,” Richmond Enquirer, J une 1, 1819; and “Colbert,” Novem- 
ber 16, 1819. 

12 “Amphictyon” (Roane), “Hints in Relation to a General Reform of our 
Banking System,” Richmond Enquirer, April 18, 1820. Roane’s article is omit- 
ted from the collection of his writings in the Enquirer published in the John P. 
Branch Historical Papers, Randolph Macon College (1904—05): vols. 1 and 2. 

Restricting Bank Credit: Proposals and Actions 


the present unsatisfactory system, then, Roane proposed “Banks 
which shall be local as to the extent of their patronage and power, 
but national as to their responsibility.” Roane — champion of states’ 
rights — suggested a Constitutional Amendment to prohibit the 
states from creating any bank corporations and to authorize the fed- 
eral government to establish an “independent bank” in every state, 
with the assent of that state. Of the capital stock of each such bank, 
one-fifth was to be subscribed by the United States government, 
one-fifth by the state, and the remainder by the citizens of the par- 
ticular state. Each bank was to have fifteen directors, all citizens of 
the state — three to be appointed by the federal government, three by 
the state government, and the remainder by the other stockholders. 
“The objection to the United States Bank, as at present organized, 
would not apply to [these] bank[s]. . . . The patronage of the direc- 
tory and its power over the circulating medium, would be confined 
to the state where it should be located.” The Bank of the United 
States had compelled some branches suddenly to curtail their note 
issue, because of the independent and lax management of other 
branches. “An independent bank would be enabled to pursue a 
course regulated only by its own business and the balance of trade 
for or against the state where it should be located.” On the other 
hand, the independent banks would be incorporated by the federal 
government and would therefore be uniform throughout the coun- 
try, and all compelled to redeem in specie. 

It cannot be doubted that institutions that are relied on 
to afford a national currency, should be under national 
control. It would be as unwise to depend on state insti- 
tutions for a medium of exchange, in which to receive 
die national dues, as it would be to depend on state 
authorities for the payment of those dues [i.e., the sys- 
tem of the Articles of Confederation], 

The Constitution, Roane asserted, gave Congress the authority to 
regulate the currency of the country and prohibit such regulation to 
the states. This should apply to paper currency as well as to specie. 

Virginia’s hard money contingent, in its distrust of banks, recog- 
nized that the Bank of the United States had inflated proportionately 


The Panic of 1 81 9 

less than did the bulk of the state banks. However, like Roane, they 
feared the bank as having greater potentialities for evil. As Ritchie 
asked: state banks were certainly evil, but “what is there to control 
the power of the national bank?” 14 

The most famous and one of the most thoroughgoing oppo- 
nents of bank credit was Thomas Jefferson. Jefferson reacted to the 
panic of 1819 as a confirmation of his pessimistic views on banks.* 3 
He elaborated a remedial proposal for the depression in a “Plan for 
Reducing the Circulating Medium,” which he asked his friend 
William C. Rives to introduce in the Virginia legislature without dis- 
closing authorship. 10 The goal of the plan was bluntly stated as “the 
eternal suppression of bank paper.” The method was to reduce the 
circulating medium gradually to that “standard level” which pure 
specie would find for itself equally in the several nations. For this 
purpose, the state government should compel the complete and 
utter withdrawal of bank notes in five years, one-fifth of the notes 
to be called and redeemed in specie each year. Further, the state 
should make it a high offense to pass or receive any other state’s 
bank notes. Those banks who balked at such a plan should have 
their charters forfeited or be forced to redeem their notes. In con- 
clusion, Jefferson declared that no government, state or federal, 
should have the power of establishing a bank. He envisioned a cir- 
culation consisting solely of specie. 17 

Governor Thomas Randolph, son-in-law and close friend of Jef- 
ferson, in his inaugural address in December, 1 820, summed up the 

l^Ritchie on Crawford’s Currency Report, Richmond Enquirer. 

ls Jefferson to John Adams, November 7, 1819, in his Writings, Bergh, ed., 
vol. 15, p. 224. 

16 Jefferson to William C. Rives, November 28, 1819, ibid., 15, pp. 229-32. 

17 Jefferson to Charles C. Pinckney, September 23, 1820, in ibid., 15, p. 279. 
Also see Jefferson to Hugh Nelson, March 12, 1820, ibid., p. 258; Jefferson to 
A. Gallatin, November 24, 1818; December 26, 1820. Also see Washington 
(D.C.) National Intelligencer, March 2, 1819. 

Restricting Bank Credit: Proposals and Actions 


predominant Virginia attitude toward banks. 18 Randolph stated that 
only specie, never paper, could be a measure of value. Specie, in uni- 
versal demand, had a relatively stable value, while banks caused great 
fluctuations in the supply and value of money, with attendant dis- 
tress. Randolph looked forward to the day when eventually the 
whole revenue of the government would be collected in specie only. 
He was willing to see the state print paper money, provided that it 
be absolutely convertible in specie and guaranteed to be equal in 
value to the specie owned by the state — in short, a 100 percent 
reserve program. 

In Delaware, the restrictionist forces kept up a running fight 
with the expansionists and advocates of relief legislation during the 
1819 and 1820 sessions. The restrictionists made their first move in 
the House upon submission of the report of the Brinckle Commit- 
tee to consider the state of the paper currency. Representative Mar- 
tin W Bates of Kent County moved to reject that part of the com- 
mittee’s report which declared it inexpedient to compel the banks to 
resume specie payment. Bates’s motion carried the House by one 
vote and had the support of Representative Henry Brinckle, him- 
self, but of no one else on the committee. 19 The House had not yet 
passed a compulsory resumption bill, however. In the next session, 
Brinckle introduced a resolution to establish a committee to intro- 
duce the required bill. 20 Brinckle’s bill passed numerous tests in the 
House, albeit by one vote, but the Speaker of the House took the 
unusual step, on final passage, of personally voting nay, and thus 
blocking the resolution by a nine-to-nine tie. 

18 Virginia General Assembly, Journal of the House of Delegates, 1820—21 
(December 4, 1820): 11-12. 

19 Delaware General Assembly, Journal of the House of Representatives, 1819 
(February 3, 1819). Only one of the legislators voted for both compulsory 
resumption and the relief proposals. 

20 Ibid., 1820 (January 29, 1820): 109-14. Apparently, it was the general 
practice in the state for a bank simply not to appear in answer to a summons 
against it, and the court would thereupon dismiss the case. Brinckle’s bill pro- 
vided that in such cases judgment against the bank be recovered by default. 


The Panic of 1 81 9 

In Maryland a leading expression of hard money sentiment was 
a citizens’ meeting at Elkton, in the extreme northeastern end of the 
state, referred to previously. Not only did the “farmers and mechan- 
ics” of Cecil County pledge themselves to refuse to take the notes 
of nonspecie-paying banks but they proceeded to denounce the 
banks and call for strict laws to compel specie payment. 21 They 
“viewed with abhorrence” the alarming increase of “fictitious capi- 
tal” furnished by banks, they assigned the principal causes of the 
“decline of agricultural, mercantile, and mechanical interests” to the 
banks, and they pledged themselves not to vote for any candidate 
that would not pledge to vote to compel specie payment by the 
banks. The meeting also passed resolutions of gratitude to 
Hezekiah Niles, editor of Niles’ Weekly Register, and to the late State 
Representative Matthew Pearce, for their staunch anti-bank leader- 
ship." The resolutions were widely reprinted throughout Maryland 
and also in the Niles’ Weekly Register They were denounced in the 
Baltimore Federal Gazette by its editor, William Gwynn, as slander- 
ous; Gwynn charged that the citizens had been duped by Niles. 
Niles quickly retorted that Gwynn was himself a bank director. 23 

Niles by no means advocated complete abolition of bank paper, 
however. His suggested remedies for the financial troubles: (1) cease 
granting corporate charters to banks; (2) make bank stockholders 
fully liable; and (3) enforce payment of all specie demands. 24 

The Maryland hard money advocates did not succeed in tightening 
the laws against banks not redeeming in specie, but they succeeded in 
blocking any action for monetary expansion by the legislature. 

2l Niles’ Weekly Register 15 (September 12, 1818): 33. 

22 For commendations of Niles for his anti-bank paper stand, from citi- 
zens of Tennessee, Maryland, and Virginia, see Niles’ Weekly Register 15 (Sep- 
tember 5, 1818): 36. 

23 The Federal Gazette, in fact, took the lead in calling for a general suspen- 
sion of specie payments. See the criticism in the New York Daily Advertiser, 
March 23, 1819. 

24 For example see Niles’ Weekly Register 16 (August 1, 1818), 377; 15 (Sep- 
tember 19, 1818), 58, 245; 20 (March 7, 1821): 36. 

Restricting Bank Credit: Proposals and Actions 


One of the leading bank restrictionists of the period was Daniel 
Raymond, a Baltimore lawyer, who in 1820 wrote Thoughts on Political 
Economy, the first systematic treatise on economics published in the 
United States. 25 Raymond set forth a virtual 100 percent specie- 
reserve position on banking. Bank notes, he maintained, should be 
confined to bank capital. Raymond criticized the assertion of Adam 
Smith and Alexander Hamilton (whom he otherwise greatly revered) 
that bank notes added to the national capital in so far as they substi- 
tuted for, and economized on, specie. 26 In reply, he cited David 
Hume that “in proportion as money is increased in quantity, it must 
be depreciated in value.” An issue of paper money therefore had the 
same effect as debasing the coinage. The increase in price raised the 
prices of domestic goods in export markets and caused an unfavor- 
able balance of trade. Bank credit also promoted extravagant specu- 
lation. Ideally, Raymond believed that the federal government should 
eliminate bank paper entirely and supply the country with a national 
paper fully (100 percent) representative of specie. 27 If this could not 
be accomplished, then Raymond suggested that banks be subjected 
to government control. Government would have a monopoly on the 
manufacture of paper, which it would give to banks, while regulating 
the maximum amount that they could lend in proportion to their 
capital. If this plan were not adopted, Raymond’s third choice was 
government’s taxing bank profits above the going rate of interest, 
thus eliminating the motive for increasing bank paper. 

Another advocate of 100 percent reserve, signing himself “A 
Farmer,” was asked, in the course of a debate in the pages of the 

25 Daniel Raymond, Thoughts on Political Economy (Baltimore: F. Lucas, Jr., 
and E.J. Coale, 1820). A second, more widely known edition was Elements of 
Political Economy, 2 vols. (Baltimore: F. Lucas, Jr., and E.J. Coale, 1823). On Ray- 
mond, especially his pro-tariff views, see Dorfman, Economic Mind, vol. 2, 
pp. 566—74. 

26 On this question, see also “A Virginian,” “Reflections Excited by the 
Present State of Banking Operation in the United States,” City of Washington 
Gazette (December 22, 1818); “A Merchant,” Boston New England Palladium, 
June 8, 1819; “Colbert,” Richmond Enquirer, November 16, 1819. 

27 Raymond, Elements, vol. 2, pp. 132 f£; also see vol. 1, pp. 248-53. 


The Panic of 1 81 9 

National Intelligencer, by a “Brother Farmer”: What would become of 
the farmers if the banks were annihilated? “Farmer” answered that 
they would no longer have debts or bankruptcies and that their 
income would then be in undepreciated specie . -8 Joining in the 
antibank sentiments, “A Stockholder” hailed the current credit liq- 
uidation and hoped that the purification process would continue 
until all banks were eliminated . 29 

In the District of Columbia there were proposals to consolidate 
the three banks of the district into one bank. These proposals were 
not adopted, however. Typical of the attacks upon it was one by 
“Nicholas Dumbfish,” who assailed the consolidation as assisting 
“in perpetuating this wretched system of paper, which, if left to 
itself, will expire, whether by its own limitation or by the total and 
irretrievable loss of public confidence.” Better to let these institu- 
tions die a natural death . 30 

New York was one of the main centers of monetary restriction- 
ist sentiment. Typical was the famous Address of the Society of Tam- 
many to its Absent Members, which circulated throughout the country. 
The report was written by John Woodward, and among its signers 
were the Grand Sachem of Tammany (then as now in political rule 
of New York County), Clarkson Crolius, and secretary James S. 
Martin . 31 The Address frankly lambasted banks as being “poison- 
ous.” In particular, it attacked bank loans to agriculture. Banks 
might be useful in rapidly liquidating commercial transactions, but 
could only bring ruin to agriculture. The Address recommended total 
abolition of bank loans to agriculture, as well as the forfeiting of the 

28 Washington (D.C.) National Intelligencer, March 22, 1819. 

29 “A Stockholder,” Baltimore Federal Republican, May 27, 1819, reprinted in 
Washington (D.C.) National Intelligencer, June 21, 1819. Also see “Cato,” 
National Intelligencer, June 19, 1819; Philadelphia Union, June 4, 1819; “Piano E. 
Sano,” Boston New England Palladium, January 18, 1820. 

jO“Nicholas Dumbfish,” Washington (D.C.) National Intelligencer, January 
11, 1820. 

^The report was signed on October 4, 1819. The Tammany Society had 
appointed a committee on August 30 to report on the state of the national 

Restricting Bank Credit: Proposals and Actions 


charters of any banks refusing specie payment. The Society of Tam- 
many itself, however, when passing recommendations for remedies 
of the depression a week later, omitted banking from the list. 32 

The Tammany Address was widely circulated and considered, and 
drew comments and letters from many famous statesmen. James 
Madison, for example, wrote to Crolius praising the report. He 
declared that even when banks restricted their operations to tempo- 
rary loans to persons in active business, promising quick returns, 
they were likely to be harmful. There was no doubt of the mischief 
involved in banks’ lending indiscriminately and at long term. 33 

One of the leading figures of New York State, Judge William 
Peter Van Ness, pseudonymously published a pamphlet advancing 
two restrictions on banks: (1) they may discount no “accommoda- 
tion paper,” i.e., simple loans that were not self-liquidating in the 
course of active trade; and (2) that they grant no renewals of loans. ,4 
Van Ness reasoned that failure to follow this rule had caused the 
depression; for when a bank loaned so as to constitute, rather than 
merely supplement, the capital of a merchant, it thereby sponsored 
“adventurers” rather than sober businessmen. Accommodation 
paper, furthermore, was created for the sole purpose of being dis- 
counted, whereas “business paper” arose from the actual sale of a 
good. 35 Van Ness believed that the Bank of the United States could 
aid greatly in furthering such a program. 

The New York City press had largely restrictionist views. The 
New York American concluded that the true remedies for the 
depression were: “The gradual . . . but flexible reduction of bank 
discounts, refusing to incorporate any new institutions, compelling 

32 John Woodward, Address of the Society of Tammany to Its Absent Members 
(New York, 1819), p. 40. 

-’-’James Madison to Clarkson Crolius, December 1819, in Washington 
(D.C.) National Intelligencer, January 22, 1820. 

34 “Aristides” (William Peter Van Ness), A Tetter to the Secretary of the Trea- 
sury on the Commerce and the Currency of the United States (New York: C.S. Van 
Winkle, 1819). 

35 Also see “A Richmond Correspondent” in Boston New England Palla- 
dium, May 28, 1819. 


The Panic of 1 81 9 

those which exist ... to redeem their notes in specie ... or forfeit 
their charter.” 36 

One unique approach to the monetary problem appeared as an 
anonymous pamphlet on currency and credit/’ 7 “Seventy-Six” 
attacked paper and bank credit. He was unique in advocating a grain 
standard instead of a specie standard. He argued that grain must 
really be the best money since people resorted to barter in grain as 
a last ditch measure. 

A significant report on the New York situation was delivered by 
Assemblyman Michael Ulshoeffer, from New York City, of the 
Committee on Currency/’ 8 Ulshoeffer’s task was to investigate reme- 
dies for the disordered currency. As he explained, “the great object 
in view is that the various banks should redeem their notes prompdy 
in specie, and that such notes should pass at their par value in every 
part of the state.” The enormous banking capital in the state should 
be reduced, he demanded, and only a vast retrenchment in the paper 
money supply, and its prompt redemption, would effectively restore 
paper to par throughout the state. It was true, he conceded, that pub- 
lic opinion governed the value of all paper money, and that the pub- 
lic must be trusted to distinguish between good and unsound banks. 
Yet, laws might aid public opinion and restore public confidence. 
The state banks, he charged, had refused to redeem their notes, had 
kept their offices closed, and had placed all manner of obstacles in 
the path of redemption, while continuing to lend and circulate their 
notes. Therefore, Ulshoeffer recommended that the state treasurer 
not receive notes of any bank not prompdy redeeming in specie, or 
not passing at par in the principal cities. 

Governor De Witt Clinton, in his message opening the 1819 ses- 
sion of the legislature, implicidy called for an end to new bank char- 
ters for the present, indicating that the multiplication of banks was 
one of the main causes of the current depression, and stating that 

36 New York American, March 6, 1819. 

,7 “Seventy-Six,” Cause of and Cure for Hard Times. 

38 New York Legislature, Assembly Journal, 1 820 (February 21, 1820): 466-69. 

Restricting Bank Credit: Proposals and Actions 


he had always been opposed to this expansion. ’ 9 Clinton charged 
that investing banks with the power to coin money instead of issu- 
ing paper would be less pernicious, since at least the coins would 
have intrinsic value. Taking this section of the Governor’s speech as 
a point of departure, the Senate and Assembly appointed a Joint 
Committee on the part of the Governor’s speech dealing with cur- 
rency. The report of Chairman David Allen, of the Eastern district, 
concluded it inexpedient to grant any more bank charters. 4 " The 
Allen Report particularly attacked overextension of banking as one 
of the major causes of the depression. The banks were all right 
when confined to commercial centers, where they invigorated trade. 
But banks overextended when they began to establish themselves in 
remote agricultural areas, emitting “excessive issues of bank notes 
without the means of redeeming them,” and the depreciation of 
their notes . 41 

One of the most astute writers in the press of the period was 
“Senex,” who had his own solution for the problem of the country 
banks in New York. 4- He explained that pernicious effects of coun- 
try banks’ overissue stemmed from their having opened accounts 
with sound city banks, the latter thus assuming the liabilities of the 
former. After accepting country bank notes on deposit, the city 
banks felt bound to redeem the country notes in specie, both from 
want of foresight and out of the desire to please their customers. If 
they had not done so, the country notes would have circulated only 
in their local areas. The remedy was simple: the city banks should 
refuse to support these worthless notes. This would “reduce the 

39 New York Legislature, Senate Journal, 1 819 (January 6, 1819): 4—14. 

40 Ibid. (January 26, 1819): 66-70. 

41 For proposals to eliminate rural banks outside of New York City and 
Albany, see Albany Argus, June 29, 1819, reprinted in the New York Evening 
Post, July 2, 1819. 

42 “Senex,” New York Daily Advertiser, March 24, 1819. On “Senex,” see 
Murray N. Rothbard, “Contemporary Opinion of the Depression of 
1819-21” (New York: Columbia University, Unpublished master’s essay, 
1946), pp. 20 ff. 


The Panic of 1 81 9 

amount of floating paper money by substituting metallic currency 
in their place.” 

There was no great need in New York for legislative action to 
enforce specie payment, since it had been largely taken care of in 
the 1818 session, before the panic had started. New York had then 
passed a bill compelling any bank to pay its notes in specie or Bank 
of United States notes, or suffer a payment of penalty interest to 
the noteholder. The strength of the proponents was seen in their 
defeating, by a two-to-one margin, Senator Martin Van Buren’s 
attempt to vitiate the bill almost completely by exempting notes 
already in existence from its provisions. The legislature, in the same 
session, also prohibited any private, unchartered banking whatso- 
ever, whether for purpose of note issue, deposit, or discount. 

The most dramatic bank crisis in New York City during the 
depression was the failure of Jacob Barker’s Exchange Bank, a private 
bank of unorthodox principles which had been established in New 
York City, a stronghold of financial conservatism. Barker had secured 
an exemption for three years from the legislative ban on private bank- 
ing, but he went insolvent as soon as the panic arrived. 43 He was 
moved to pen a rather remarkable apologia for his actions. 44 Barker’s 
pamphlet depicted a virtual morality play. His bank was begun after 
the war as a humanitarian gesture, doing its business mainly “with 
mechanics and residents of the neighboring counties, who were 
unable to obtain accommodations from other banks.” Barker’s rivals, 
the corporate banks, were angry because of this benevolence and 
conspired to wreck the bank. Barker was able to withstand all the 
wicked maneuvers, until pressure for redemption somehow built up 
from various sources, and he was forced to suspend specie opera- 
tions, which in New York meant to go out of business. 

A rebuttal pamphlet, printed anonymously, put its finger on a 
common point of restrictionist attack: small denomination notes. 45 
“Plain Sense” pointed out that Barker’s notes were overissued and, 

43 New York Legislature, Senate Journal, 1818 (February 28, 1818): 98. 

44 Jacob Barker, (Appeal) to the Public (New York, 1819). 

45 “Plain Sense,” An Examination of Jacob Barker's Appeal to the Public (New 
York, 1819). 

Restricting Bank Credit: Proposals and Actions 


consequently, were now exchanging at a 45 percent discount. Par- 
ticularly evil was small note circulation, and Barker’s Bank was espe- 
cially active in issuing small notes, which circulated among the 
poorer classes and “increase the change in favor of the banker” 
through destruction, accidents, etc. Furthermore, such people 
accepted the notes, even when depreciated, out of ignorance or 
necessity. The author advocated that banks be prohibited from issu- 
ing notes under $20. Such prohibition would restrict the area of 
their circulation; “notes would constantly be flowing into the hands 
of men having large capitals, and engaged in extensive transactions, 
who would return them into the bank for payment when they came 
into their hands.” The public would then be safe, and the banker 
would have to confine himself to fair profits “arising from the 
employment of his real capital.” 

Another writer, using the signature “A Merchant,” pointed out a 
second major argument against small note issue: that it leads to 
rapid disappearance of specie from circulation. He urged that the 
New York legislature follow the lead of Pennsylvania, Maryland, 
and Virginia and prohibit all notes under $5 denomination. 46 

Anti-bank sentiment was strong in Pennsylvania, which, as seen, 
was a battleground for expansionist proposals. As the panic arrived, 
alongside petitions for monetary expansion came petitions for 
coerced specie payment. Requests bombarded the legislature for liq- 
uidation of the charters of all the banks that had suspended specie 
payments, and for rendering the property of individual stockhold- 
ers fully liable. Some of the petitions went so far as to urge revoca- 
tion of all bank charters in the state. Conspicuous in sending such 
petitions were Mifflin County in central Pennsylvania, neighboring 
Union County, and Bucks County in the extreme eastern part of the 
state. 47 In far west Pittsburgh, the Republicans of the district (and 
the Republicans were the only effective political party in the state), 
and all Republican candidates for office, favored a compulsory 

46 “A Merchant,” in New York Daily Advertiser, January 16, 1822. 

47 Pennsylvania Legislature, Journal of the House, 1818—19 (December 29, 
1818, January 30, 1819): 334-39; and 1819-20 (January 4, 1820): 160-62. 


The Panic of 1 81 9 

specie payment law. 48 These Republicans also favored a tax against 
the Bank of the United States. In both of these demands, they were 
endorsed by the Pittsburgh Statesman 49 State Senator Condy Raguet, 
in the course of his very extensive inquiry into the extent of the 
depression in Pennsylvania, sent a questionnaire to leading citizens 
as well as legislators in each county, sampling opinion on the depres- 
sion. One of his questions was, “Do you consider that the advan- 
tages of the banking system have outweighed its evils?” 50 Of the 
nineteen counties sampled, sixteen answered in the negative, and 
these covered all areas of the state. 

Raguet, who concluded that the depression was caused by bank 
credit expansion in the boom and subsequent contraction when 
specie drained from bank vaults, urged that every new or renewed 
bank charter have the following restrictive provisions: 

(1) a penalty of 12 percent interest per annum and forfeiture of 
the charter, should any notes or deposits not be redeemed in specie 
on demand. (This was the most important provision. 51 The inclusion 
of deposits with notes was characteristic of Raguet, who pioneered 
in emphasizing their simultaneity in constituting the money supply.) 

(2) loans to be limited to 150 percent of paid-in capital. 

(3) all profits over 6 percent to be divided equally between stock- 
holders and the state. 

(4) prohibition on borrowing from a bank by one of its direc- 
tors, also ban on a bank director’s holding legislative office. 

(5) annual inspection of bank accounts. 

(6) prohibition of small notes under $5 denomination. 

(7) no bank should be permitted to buy its own notes, or notes 
of any other bank, for less than par. (This was to check the specu- 
lative practice of country banks’ buying their own notes in the city 
at a discount, instead of having to redeem them at par.) 

48 Niles’ Weekly Register 15 (September 19, 1818): 58-59. 

^Pennsylvania Legislature, Journal of the House, 1 81 8— 19 (January 5, 1819): 
138; and (February 1, 1819), p. 345. 

^Pennsylvania Legislature, Journal of the Senate, 1819—21 (February 14, 
1820): 311-37. 

51 Ibid., 1819-21 January 29, 1820): 221-26. 

Restricting Bank Credit: Proposals and Actions 


(8) no bank should be able to own any securities of the United 
State government, or its own stock, or the stock of any other cor- 
poration. (The purpose of banks, as gleaned from their charters, 
wrote Raguet, was to accommodate merchants, farmers, mechanics, 
and manufacturers, and not to lend to stock speculators. Investing 
in government securities was a particular spur to speculation, since 
the greater marketability of government bonds caused government 
to issue more notes than it would otherwise.) 

(9) no loans on security of bank’s own stock. 

(10) a required contingency fund for redemption of 10 percent 
of the bank’s capital. 

Although Raguet was decidedly unsympathetic to the existence of 
any banks aside from those with 100 percent reserve for their demand 
liabilities, 52 he doubted whether repeal of existing charters was expe- 
dient. Instead, he advocated inserting the provisions listed, before any 
charters were renewed. For existing banks in suspension, Raguet rec- 
ommended that the charters not be renewed, that they be prohibited 
from making any new loans or note issue, and that they be given three 
to five years to collect their debts and wind up their affairs. 

Similar calls for restrictions on banks, particularly for the forcing 
of specie payment, were made in William Duane’s Philadelphia 
Auroral Duane advocated compulsory specie payments and full 
individual liability for banks’ stockholders. Similar provisions had 
unfortunately been turned down in 1814, when forty- two new 
banks were incorporated. And now, as then Governor Simon Sny- 
der and other critics had predicted, those rural counties which had 
been the most enthusiastic supporters of bank expansion were “the 
most distressed and impoverished,” and the same areas were peti- 
tioning the legislature to confine all banks to cities. 

52 In Raguet’s terminology, banks going beyond 100 percent reserves were, 
in this respect, “banks of circulation.” In their capacity of storing money, they 
were “banks of deposit,” and in their capacity of lending their own money or 
the borrowed funds of others, they were “banks of discount.” Raguet’s report 
on bank charters, ibid., 1820-21 (January 15, 1821): 252-68. 

53 Reprinted in Philadelphia United States Gazette, January 30, 1819. 


The Panic of 1 81 9 

“A Pennsylvanian,” in an article in the Philadelphia Union, in the 
course of an open letter to the Raguet Committee, recommended 
the following provisions in bank charters: 

(1) no bank may refuse to redeem its paper when it has specie in 
its vaults (a milder provision than recommended by Raguet). 

(2) no bank suspending payments should be allowed to issue 
paper or declare dividends. 

(3) directors of suspending banks must call on stockholders not 
yet paid in full, and sue defaulting stockholders. 

(4) every director to be individually liable for the paper. The 
writer asserted that these measures, in addition to ending fraudulent 
practices, would prevent future depreciation of bank paper, reduce 
bank paper outstanding, and increase its value. 54 

The Pennsylvania legislature began restricting bank expansion in 
late 1818, at the urging of former Governor Snyder, now a State 
Senator. It passed resolutions compelling suspended banks to make 
public statements of their affairs and prohibiting them from declar- 
ing dividends during the period of suspension. 53 In the spring of 
1819, Pennsylvania annulled the charter of any bank refusing to 
redeem its notes in specie, except for the very important case of 
brokers who had bought the notes at a discount. 56 

In 1819, the Pennsylvania legislature passed a law forfeiting the 
charter of any bank established under the mass incorporation act of 
March, 1814, which, after August of 1819, should refuse to redeem 
its notes in specie. Stockholders and directors would be individually 
liable and there would be a 6 percent interest penalty on the bank. 57 
In 1820, the Pennsylvania General Assembly suggested a constitu- 
tional amendment prohibiting the United States Bank from having 
branches within the states. 

In Rhode Island, the panic quickly led to abolition of the state’s 
peculiar system of debt collection — particularly speedy in the case 

54 “A Pennsylvanian,” in Philadelphia Union, February 11, 1820. 
55 Niles’ Weekly Register 15 (January 2, 1819): 350. 

56 Ibid., 16 (April 17, 1819): 132. 

57 Washington (D.C.) National Intelligencer, April 15, 1819. 

Restricting Bank Credit: Proposals and Actions 


of a bank collecting from its borrowers, as compared to creditors 
trying to collect from the bank. Another step taken by Rhode 
Island, in June, 1820, was to prohibit banks from circulating notes 
in excess of their paid-up capital. This was not really necessary in a 
state with conservative banking. 58 

Vermont had passed a stringent law, in 1817, prohibiting the cir- 
culation of non-specie paying bank notes, so that the hard money 
forces needed mainly to repulse expansionist programs, which in 
Vermont consisted largely of appeals for chartering new banks. One 
intense dispute took place over a phenomenon peculiar to Vermont 
the fact that there were many private Canadian bills in use in the 
state as money. A bill was presented in the legislature to prohibit the 
circulation of Canadian private notes; this bill almost passed, but 
was finally rejected. In the meanwhile, the opposition attempted to 
pass a law compelling the state to receive Canadian notes for taxes 
and debts due, but this was summarily dismissed. 59 

In New Hampshire, hard money forces, led by former Governor 
William Plumer, caused a great stir in the 1820 session, by petition- 
ing the legislature against any charter renewals for banks. The sug- 
gestion was tabled by the legislature. 60 

A New England writer, “O.,” brought up an acute point: one 
cause of excess bank credit expansion was the banks’ agreement 
between themselves to accept and exchange each others notes. In 
effect, they borrowed from each other without paying interest. 
“O.” saw perceptively that competition between numerous banks 
could restrict the total supply of bank notes, for each bank could 
only issue its notes to a narrow, limited clientele, beyond which the 
notes would be returned to the bank quickly for redemption. 
Interbank agreements could suspend this force. Therefore, “O.” 

58 Brigham, “The Period,” p. 292. 

59 Vermont General Assembly, Journal of the House, 1820 (November 10, 
1820): 198f£, also (November 13, 1820), pp. 212ff. For an example of New 
Hampshire antibank opinion, see “C.S.” in Washington (D.C.) National Intelli- 
gencer, November 11, 1819. 

60 Washington (D.C.) National Intelligencer, November 28, 1820. 


The Panic of 1 81 9 

recommended that legislatures consider such agreements to be 
violations of bank charters. 61 

Thomas Jefferson’s thoroughgoing opposition to paper money 
was heartily concurred in by his old enemy and current friend, 
Massachusetts elder statesman John Adams. Adams, writing to his 
old Jeffersonian opponent, John Taylor of Caroline, denounced 
banks roundly and placed the blame for the depression on their 
shoulders. Paper money beyond the value of specie he considered 
to be “theft” and bound to depreciate as in the case of debased 
coins. 62 He cited a similar abysmal failure of paper money in Mass- 
achusetts in 1 77 5, which was quickly and efficiently replaced in cir- 
culation by silver. 

John Adams’ son, Secretary of State John Quincy Adams, had 
similar views on bank paper at that time. 63 A plan for government 
paper money had been sent to him by a Frenchman, Peter Paul De 
Grand. Adams wrote De Grand that he would send the plan on to 
Secretary of Treasury Crawford, but that he himself felt that it 
would create fictitious capital. He commended to De Grand the 
Amsterdam bank system, where paper was “always a representative 
and nothing more” — a 100 percent equivalent of the specie in the 
banks vaults. 

In Indiana, a bill in 1821 to prohibit issue of irredeemable bank 
currency failed in the legislature, 64 although a citizens’ meeting in 
Washington County, across the river from Louisville, denounced the 
entire banking system as a destructive and fraudulent monopoly. 63 

61 “0.” in Boston New England Palladium, July 4, 1820. 

62 John Adams to John Taylor, March 12, 1819, in John Adams, Works 
(Boston: Little, Brown and Co., 1856), vol. 10, p. 375. 

63 John Quincy Adams to Peter Paul Francis De Grand, November 16, 
1818. De Grand proposed that the government issue paper and lend it at 
3 percent to the Bank of the United States, which would in turn lend it at 
6 percent to private borrowers. John Quincy Adams, Writings, Worthington C. 
Ford, ed. (New York: The Macmillan Co., 1916), vol. 6, pp. 472-73. 

64 Esarey, “The First Indiana Banks,” p. 152. 

65 On May 16, 1819. See Washington (D.C.) Nationallntelligencer,]\m& 19, 1819. 

Restricting Bank Credit: Proposals and Actions 


Missouri outlawed private unchartered bank notes in 1819. 66 In 
Ohio, Governor Ethan Allen Brown laid the blame for the depres- 
sion on excessive bank credit and declared the only remedy to be 
the gradual reduction of bank paper, which would revive the credit 
of the banks. 67 As early as the beginning of 1819, a Committee on 
the State of the Currency and Banks of the Ohio House recom- 
mended that the law against private unchartered banks be enforced, 
and that inquiries be made into the conditions of banks not report- 
ing their accounts. 68 

The depth of sentiment throughout the West against banks in 
general and the Bank of the United States in particular, for their 
excessive expansionist and contractionist activities, was revealed by 
incidents in rural Ohio. In the fall of 1819, General William Henry 
Harrison, later President of the United States, was a successful can- 
didate for the Ohio State Senate. A citizens’ meeting before the elec- 
tions criticized him for being a director of a local branch of the 
Bank of the United States. Harrison, in a lengthy reply, insisted he 
was a sworn enemy of all banks and especially the Bank of the 
United States. 69 He declared that he was unalterably opposed to the 
establishment and continuance of the United States Bank. 

The major energies of Ohio during this period, in fact, were 
occupied by its famous war against the Bank of the United States. 
This war was not depression-born, having begun in late 1817 with a 
proposal to tax the business of the bank’s Ohio branches, in order 
to drive them out of the state. The tax was defeated in this session, 
but carried overwhelmingly in February, 1819, after the anti-bank 
forces had triumphed in the fall elections of 1818. Leader in the 
fight was Representative Charles Hammond, from Belmont 

66 Anderson, “Frontier Economic Problems, I,” p. 63. 

67 Ohio General Assembly, journal of the House, 1819—20 (December 7, 
1819): 9-15. 

68 Washington (D.C.) National Intelligencer, February 8, 1819. 

69 Niles’ Weekly Register 17 (October 30, 1819): 139. 


The Panic of 1 81 9 

County. 70 Anger at the bank was compounded of three elements: 
inflationists’ irritation at the bank’s contractions and calling on state 
banks for redemption; hard money resentment at the bank’s expan- 
sionist activities during the boom; and general political anger at a 
privileged “money power.” The law that levied a tax on the bank 
also imposed the same tax on all unincorporated banking in the 
state, thus revealing the predominance of general anti-bank opinion 
in Ohio. Attempts to tax or penalize the bank were struck down in 
famous United States Supreme Court decisions — Maryland’s in 
McCulloch vs. Maryland (1819) and Ohio’s in Osborn vs. Bank of United 
States (1824). 71 

In the frontier town of Detroit, in Michigan Territory, the citi- 
zens became aroused about the depreciated state of their circulating 
medium, which consisted principally of Ohio bank notes. In early 
1819, they organized a meeting to deal with the depreciated small- 
change notes which individuals were issuing and circulating. The 
meeting pledged the members not to accept any individual change 
notes that were not redeemable within three days after demand for 
redemption. 72 In December of the same year, the leading citizens of 
Detroit held a meeting over the depreciated state of Ohio bank 
notes. They noted in alarm that the recent suspension of specie pay- 
ment by these banks opened the door to a much greater deprecia- 
tion. Therefore, the citizens resolved that those banks not redeeming 
their notes in specie were unworthy of confidence. The meeting 
appointed a committee of five to inquire into the condition of all the 
banks whose notes were circulating in Michigan, and to publish their 

70 Hammond was the recognized leader of the Ohio bar, leader of the Fed- 
eralist Party in Ohio, and was later to decline a United States Supreme Court 
nomination tendered him by John Quincy Adams. See Charles B. Galbreath, 
History of Ohio (Chicago: American Historical Society, 1925), vol. 2, p. 468. 

71 Maryland and Kentucky had also levied a tax on the Bank before the 
depression. Kentucky accepted the decision of the Maryland case. 

72 The meeting took place on January 30, 1819. See Detroit Gazette, Feb- 
ruary 5, 1819. 

Restricting Bank Credit: Proposals and Actions 


results periodically in the Detroit Gazette. The committee was also 
directed to inquire into the status of individuals issuing small notes. 73 

The citizens of Detroit also took action against clipped, or 
“cut,” silver, which made its appearance in force during the panic. 
The Detroit Gazette urged its readers to accept cut silver only by 
weight, and not at face value. A year later, in August, 1821, a large 
meeting of Detroit citizens resolved to refuse to accept cut silver 
coins, and to do all they could to discourage their circulation. This 
voluntary action effectively ended cut coin in Detroit. 74 

The state of Tennessee saw a concerted drive by hard money 
forces at the same time that expansionists were pushing their pro- 
posals. A petition from Warren County, a rural county in mid- 
Tennessee, demanded bluntly that banks be placed on a plane of 
“constitutional equality with the citizens,” by compelling them to 
redeem their notes in specie. Refusal should entail a penalty interest 
on the bank, and stockholders should be personally liable. Similar 
petitions were received from Smith and Giles Counties, in mid- 
Tennessee. 75 A bill to compel specie payment or suffer an interest 
penalty was introduced in the House in the late 1819 session, by the 
hard money leader, Representative Pleasants M. Miller of Knoxville. 
The bill passed the House by a 20-to-14 vote, but was rejected in the 
Senate. 6 Representative J. C. Mitchell, of Rhea County in East Ten- 
nessee, proposed instead to make all real and personal property of 

73 Secretary of the meeting was J.P. Sheldon, publisher of the Detroit 
Gazette, and also designated printer of the U.S. Laws for the Michigan Terri- 
tory. Chairman of the Committee was James Abbott, a dry goods merchant. 
The committee periodically reported its findings in the Gazette. 

74 Dain, livery House a Frontier, pp. 102-03. 

75 Nashville Gazette, September 15, 1819, cited in Parks, “Felix Grundy”; 
Tennessee General Assembly, journal of the House of Representatives, 1820 dune 
28, 1820): 925. 

76 Tennessee General Assembly, Journal of the House of Representatives, 1819, 
pp. 75ff, 132ff, 182ff. Of the 20 votes in favor, 17 came from East Ten- 
nessee, while only 3 came from mid-Tennessee. Similarly, of the 14 votes 
opposed, 12 came from mid-Tennessee. Yet, as seen previously, there was a 
great deal of anti-expansionist opinion in mid-Tennessee. Also see Parks, 
“Felix Grundy,” pp. 19-43. 


The Panic of 1 81 9 

bank stockholders liable for bank debts, but the House spurned this 
for the stronger Miller bill. After assuming office in 1821, Gover- 
nor William Carroll turned the tide of the state’s expansionist legis- 
lation and called for coerced resumption of specie payments, a step 
which was eventually adopted. One point of interest for the later 
post depression years was that the young future President James K. 
Polk, a wealthy cotton planter, began his political career with a 
staunch advocacy of return to specie payments. Polk maintained 
that specie payments were essential for confidence and in order to 
end depreciation. 78 Polk also proposed a measure to speed up exe- 
cution against the property of any bank that might refuse to pay 
specie, joining young Polk at this time was the frontier representa- 
tive from western Tennessee, Davy Crockett, who “considered the 
whole Banking system a species of swindling on a large scale.” 79 

A great deal of anti-bank sentiment was expressed in Kentucky 
during the controversy over inconvertible paper schemes. State Sen- 
ator Jesse Bledsoe, from Bourbon County, delivered a speech which 
was later reprinted in pamphlet form. The speech was essentially a 
denunciation of the banking system as the cause of the depression 
through granting credit, thereby generating debt burdens and bank- 
ruptcies. Bledsoe called for the abolition of incorporated banking 
and compulsory redemption in specie by the banks. 80 

Amos Kendall, influential editor of the Frankfort (Ky.) Argus, and 
a future Jacksonian advisor, became a bitter opponent of the entire 
banking system as a result of the depression. 81 The very thought of 
banks he found “disgusting.” The best method of rendering them 

77 Parks, Felix Grundy , p. 109. 

78 Tennessee General Assembly, Journal of the House of Representatives, 1820, 
pp. 39-40; ibid, 1821 (September 21, 1821): 49. 

79 Nashville Whig, October 13, 1823, quoted in Charles G. Sellers, Jr, James 
Volk, Jacksonian, 1795—1843 (Princeton, N.J.: Princeton University Press, 1957), 
pp. 79ff. 

81 Jesse Bledsoe, The Speech of Jesse Bledsoe, Esq. . . . Concerning Banks (Lexing- 
ton, Ky.: Norvell, 1819). 

81 Kendall, Autobiography, passim. 

Restricting Bank Credit: Proposals and Actions 


harmless, he felt, was simply to prohibit them by constitutional 
amendment. If, as seemed likely, such a step was not politically feasi- 
ble, then the next best step was to require every bank to give a secu- 
rity fund to the courts to provide for payment for their paper. This 
requirement, he believed, would insure that all liabilities could be 
redeemed (in effect, a 100 percent reserve plan) and would be more 
effective than to require individual stockholder liability. 

As soon as the panic struck, Governor Gabriel Slaughter quickly 
called for action to restrict the banks. 8- He advocated making stock- 
holders and directors individually liable for bank notes. Ideally, 
Slaughter sought a federal constitutional amendment to oudaw all 
incorporated banks. 8 ' 1 

In the Kentucky legislature, Representative John Logan from 
Shelby County, near Frankfort, proposed a set of resolutions to 
investigate the mass chartered “independent” banks with a view to 
repeal the charters of those found violating their requirement to pay 
specie on demand. These banks, forty in number, had opened in the 
spring of 1818, expanded their notes rapidly, and were now refus- 
ing to redeem. They had an aggregate capital of $89 million. 84 Rep- 
resentative Thomas C. Howard, of Madison County, south of Lex- 
ington, attempted to amend the resolution to repeal immediately the 
charters of all the independent banks. The resolution for investiga- 
tion passed overwhelmingly, but the repeal measure was beaten by a 
three-to-one margin. 85 

Kentucky moved swiftly against the banks. In early 1819, the 
bank committee reported to the House a rather mild bill along the 
lines of Slaughter’s message. It required that banks pay a tax of 
V 2 percent per month on their capital, that the directors be individ- 
ually liable for the notes of their bank, and that there be “double lia- 
bility” for stockholders. When the bill reached the floor, there was 

82 Kentucky General Assembly, journal of the House of Representatives, 1818—19 
(December 2, 1818): 9-19. 

83 Connelley and Coulter, Historj, p. 605. 

84 Baylor, Pope, p. 150. 

83 Kentucky General Assembly , Journal of the House of Representatives, 1818—19 
(December 19, 1818): 87-91. 


The Panic of 1 81 9 

a flurry of attempts both to weaken and strengthen the measure. 
The pro-bank forces succeeded in including an amendment requir- 
ing the state treasury to receive the notes of all banks complying 
with the bill. They failed by a two-to-one vote to require the state to 
receive the notes of all banks incorporated in Kentucky, regardless 
of what provisions they followed. 

The restrictionists passed far stronger amendments. One was a 
proviso requiring the state to refuse any notes in taxes unless the 
bank, each year, bonded with an auditor security in pledge that the 
banks pay all demands in specie. This passed by a two-to-one vote. 
An amendment to extend the provisions from the “independent” 
banks to all banks in the state failed by two to one. Finally, the legis- 
lature passed the bill restricting the action of the independent banks. 

In January, 1819, there was also introduced into the legislature a 
very vigorous series of anti-bank resolutions. They charged that 
banks were a moneyed monopoly and substituted speculation for 
production. They concluded that banks should be abolished by the 
federal government and the states. No action was taken on this 
proposal. 86 Early in the 1820 session, the legislature finally repealed 
the charters of the independent banks, ending also their mass of 
depreciated notes. Almost all these banks had suspended payments 
by mid-1819. 8 ' The bill, commended heartily by Niles, passed by a 
two-to-one vote in the House and by a narrow three-vote margin 
in the Senate. 88 

Restrictionist proposals in the federal arena concentrated, of 
course, on the activities of the one federally chartered bank, the 
Bank of the United States. Representative John Spencer, from 
upstate New York near Onondaga, and chairman of the famous 
committee that had revealed some of the malpractice of the bank, 

86 Connelley and Coulter, Histoiy, p. 605. See also Bray Hammond, Hanks 
and Politics in America (Princeton, N.J.: Princeton University Press, 1 957), p. 608. 

87 The charters were repealed at the end of 1820 to take effect in May 
1821. See Stickles, Critical Court Struggle, p. 22. 

88 Niles’ Weekly Register 20 (June 17, 1820): 296. 

Restricting Bank Credit: Proposals and Actions 


introduced a resolution to forfeit the bank’s charter unless it 
accepted restrictions on its activities. 89 These included provisions 
against fraud in the purchase of bank stock, reduction of its capital, 
and a maximum limitation of $5 million of bank holdings in United 
States bonds. Spencer withdrew his proposal after he saw that there 
was no chance for adoption. Representatives David Trimble from 
the vicinity of Lexington, Kentucky, and Joseph Johnson from 
northwest Virginia, went further to propose outright repeal of the 
bank charter. Trimble declared that the bank had failed in two of its 
original purposes — equalling exchanges within the country, and 
checking the paper issues of local banks. On the contrary, it had 
contributed to excessive credit expansion by waiving the collection 
of stock installments in specie. He predicted that if the bank con- 
tinued in operation the currency would only be further depreciated 
and deranged. Representative James Pindall, from northwest Vir- 
ginia, denounced the bank for expanding its issues, as well as for 
withdrawing needed specie capital from other banks. 

The Trimble Bill failed by an overwhelming margin. Indeed, the 
only restriction on the bank that passed was a bill by Representative 
Burwell Bassett from eastern Virginia, to prohibit any director of 
the bank from dealing in its own stock.' 111 

Except for these proposed restrictions or abolition of the Bank 
of the United States, Congress had little chance to consider the 
banking problem. One interesting pronouncement, however, was a 
report in February, 1820, by Representative Joseph Kent, of Mary- 
land, from the outskirts of Washington. Kent, Chairman of the Dis- 
trict of Columbia Committee, reported on a proposal to consolidate 

89 Spencer came from a leading New York family. He was a leading Clin- 
tonian, later a Whig and Secretary of War under Tyler, and a rejected Tyler 
appointee to the United States Supreme Court. 

90 'Annals of Congress, 15th Congress, 2d Session (February 18, 1819), 
p. 1254; (February 24, 1819), pp. 1404—09; also see M. St. Clair Clarke and D. 
A. Hall, Legislative and Documentary History of the Bank of the United States (Wash- 
ington, D.C.: Gales and Seaton 1831), pp. 682ff. 


The Panic of 1 81 9 

the banks in the Capital territory. 91 Kent opposed compulsory con- 
solidation. He stated that competition in banking was salutary, and 
that while banks were injurious, there would be no remedy in sud- 
denly prostrating them. Instead, the evil excesses of banking were 
currendy being corrected through failures and lowered profits. 

One of the few leading citizens opposing severe restrictions on 
banking from a point of view not simply expansionist, was the influ- 
ential New York merchant, Churchill C. Cambreleng. 112 He declared 
banks only secondarily responsible for the economic evils, since they 
were not the only creators of “fictitious capital.” If bank credit were 
suppressed, other forms of credit would replace it. “Legislatures 
might as well attempt to confine the wind — as to encircle credit with 
legal restrictions.” Cambreleng, however, was by no means in favor 
of unrestrained banking action. On the contrary, he believed that 
unincorporated private banks injured trade and property and should 
be eliminated. Incorporated banks were beneficial, but they must be 
rigidly regulated by the government, namely: there should be a max- 
imum limit on the amount of paper issued; annual statements and 
reports by banks should be required; and banks should be compelled 
to pay specie on penalty of a 12 percent interest payment. Such reg- 
ulations, asserted Cambreleng, were particularly needed in the south- 
ern and western states. 

Thus, monetary restrictionists did not all limit themselves to 
opposing inflationist schemes and calling for enforcement of specie 
payment by the banks. Many went further to suggest regulations of 
banks to facilitate the maintenance of specie payment. Quite a few 
wanted to confine banks to the principal commercial cities, to pro- 
hibit notes of small denominations, or to confine bank loans to 
short-term commercial discounts. Some believed that vigorous 
competition between banks would suffice to restrict the note issue 

^Representative Kent to House of Representatives, American State Papers: 
Finance 3, no. 575 (February 2, 1820): 470. Kent was a leading politician and 
farmer who later became a leading Whig, a senator and three times governor. 

92 “One of the People” (Cambreleng), An Examination of the New Tariff 
pp. 189-202. 

Restricting Bank Credit: Proposals and Actions 


of each. They saw that interbank agreements would thwart such 
restriction and concluded that such agreements should be oudawed. 
Many leading restrictionists proceeded onward to condemn all 
banks, and either recommended outright repeal of all bank charters 
or an enforced 100 percent specie reserve. This position is particu- 
larly interesting, as it predated the enunciation of the similar Cur- 
rency Principle in Great Britain. 

It is clear, once again, that hard money opinion was not stratified 
along geographical or occupational lines. Restrictionist sentiment 
ranged from such eminent and disparate leaders as Thomas Jeffer- 
son and John Quincy Adams to obscure western farmers. Hard 
money opinion was particularly strong in Virginia, New York City, 
and New England, but it permeated every state and territory in the 
Union. Party lines meant litde, for ultra-hard money sentiments 
were echoed by arch-Republicans and Federalists alike. In New York 
State, the two bitterly disputing Republican factions (De Witt Clin- 
ton, and Van Buren-Tammany) both upheld a sound money posi- 
tion. Hard money leadership was abundant and influential in the 
West as well, although wealthy and influential leaders of opinion 
were also ranged on the other side of the fence. Furthermore, it 
cannot be said that commercial towns favored one or the other of 
the monetary positions — expansionist and restrictionist — while 
rural areas favored another. Each subdivision of each geographic 
region engaged each other vigorously in the press, and disputants 
often came from the same county. Taken all in all, it is fair to say that 
the majority of leading opinion was on the hard money side, at least 
to the extent of supporting specie payment and opposing inflation- 
ist plans. Only a minority of restrictionists pressed further for more 
drastic measures against bank paper. 

The Panic of 1819 intensified hostility against the Bank of the 
United States, and enmity toward the bank grew throughout the 
country. Aside from long-standing hostility on general political or 
constitutional grounds, opponents of the bank consisted of the 
uncompromising wings of two diametrically opposed camps: the 
inflationists who wanted inconvertible government paper, and the 
hard money forces who criticUed the bank for acting as a national 


The Panic of 1 81 9 

force for monetary expansion. Historians portraying the struggle 
over the Bank of the United States have often overlooked, or 
slurred over, this critical distinction. 93 The Jacksonian war against 
the bank has often been depicted as an inflationist battie against 
central bank restrictions on credit. Yet the opposite viewpoint, 
which realized that the bank’s nationalizing force was a powerful 
engine of credit expansion, was also important, as evidenced by 
hard money attacks on the bank during the 1818—21 period. 

Another major area of controversy generated by the depression 
presented far more clear-cut sectional and occupational features 
than the monetary debates; this was the tariff question. 

‘^’Professor Schur, in a recent article, seriously underweights both the 
inflationary role of the bank in 1817—18, and the extent to which the reaction 
against the bank stemmed from hard money views. Leon M. Schur, “The Sec- 
ond Bank of the United States and the Inflation After the War of 1812,” The 
journal of Political Economy 68 (April 1960): 118-34. 


The Movement for a 
Protective Tariff 

The depression of 1819 was a great tonic to the movement for 
a protective tariff for American industry. Domestic industry, partic- 
ularly in textiles, had expanded gready under the impetus of the War 
of 1812, which virtually blocked foreign trade and imports of man- 
ufactured goods. The textile industry, in particular, was hit by the 
impact of foreign and especially British competition in the postwar 
period. Leading the complainants were the cotton manufacturers, 
and they were joined, among others, by the woolen manufacturers, 
the paper manufacturers of New England, the bar iron manufac- 
turers, and the Louisiana sugar planters. 1 Many protectionists 
charged that there was a British conspiracy afoot to dump their 
goods in the United States and crush infant American competitors. 2 

The tariff of 1816, adjusting American rates after the abnormal 
restrictions of the war period, established a moderate tariff, largely for 
revenue, averaging about 20 percent of value. Duties on cotton and 
woolen goods were set at 25 percent, but were supposed to fall in 
1819. Thus, the higher rates were conceived as a temporary measure 

1 U.S. Congress, American State Papers: Pittance 3, no. 455 (December 1 3, 1 81 5): 
32; no. 458 (December 22, 1815): 52; no. 460 (January 5, 1816): 56; no. 533 
(April 7, 1818): 265; no. 476 (March 6, 1816): 103; no. 501 (February 4, 1817): 
168. Also see Niles’ W'eekly "Register 10 (March 23, 1816): 49; 10 (April 13, 1816): 
99; 11 (November 9, 1816): 424; 11 (May 10, 1817): 166-67. 

2 Most of them cited a statement advocating deliberate dumping made by 
the influential Lord Brougham before a Parliamentary Committee. Niles’ 
Weekly Register 11 (December 28, 1816): 284. 



The Panic of 1 81 9 

to ease the adjustment of domestic manufactures to the new com- 
petitive conditions. Probably the most protective feature of the new 
tariff was the adoption of a specific duty on cheap cottons.' 1 The 
effect was to exclude cheap cottons from India, and thus remove the 
major threat to the mass market of new plants such as the factory at 
Waltham, Massachusetts. The first advocate of this duty 7 , in fact, was 
the Massachusetts cotton manufacturer, F. C. Lowell. 

The other major victory achieved by the protectionists before 
the depression was an increase in the duty of bar iron in 1818, and 
the indefinite extension of the 25 percent duty on cotton goods in 
the same year. 

To further their cause, the protectionists established at the end of 
1816 an American Society for the Encouragement of American Man- 
ufactures. 4 5 * This was soon followed by affiliated subsidiary societies: 
the Delaware Society for Promoting United States Manufactures; the 
Pennsylvania Society; the Philadelphia Society for the Promotion of 
National Industry; and others in Washington, D.C., Baltimore, New 
York and New England. Head of the American Society was Vice- 
President of the United States, Daniel D. Tompkins; many leading 
political figures joined, including Madison, Jefferson and John Adams. 

The society set its aims at making the temporarily high cotton 
and woolen duties permanent; the absolute prohibition of the 
import of cotton from India; a proviso that all government officials 
clothe themselves in domestic fabrics, and any other necessary pro- 
tection. The first objective was soon attained; the second objective 
had been achieved de facto though not de jure by the minimum provi- 
sions of the Tariff of 1816. By the spring of 1818, under the impact 
of the boom, as well as the attainment of their goals, the protec- 
tionist movement had become more or less dormant. 3 

3 The minimum duty of 25 cents per square yard was equivalent to an over 
6 cents per yard rise in price. Clark, Histoiy of Manufactures, vol. 2, p. 275. 

4 Bishop, Histoiy, pp. 230ff. Also see Niles’ Weekly Register 12 (March 29, 
1817): 75; New York livening Post, June 14, 1817. 

5 The report of the Corresponding Committee to the American Society 

for Encouragement of Manufactures, in the New York Evening Post, February 

28, 1819. 

The Movement for a Protective Tariff 


The advent of the depression in late 1818 came, therefore, as a 
particular boon to the protectionist cause. Societies for the Promo- 
tion of Industry blossomed with renewed vigor, expanded, and flour- 
ished throughout New England and the Middle Atlantic states — the 
relatively industrialized areas — and deluged Congress and the press 
with protectionist petitions and manifestos. The unquestioned leader 
in this drive was the energetic Matthew Carey, Philadelphia printer 
and leader of the Philadelphia Society. 6 Carey and his associates were 
ever ready to emphasize and maximize the extent of the distress, as a 
prelude to the call for a protectionist remedy. 7 

Carey organized, in the winter of 1819, a Convention of the 
Friends of National Industry, which included protectionist leaders 
from nine states — Massachusetts, Rhode Island, Connecticut, New 
York, New Jersey, Pennsylvania, Delaware, Maryland and Ohio. 8 
The delegates met in New York on November 29, with Carey as sec- 
retary and William Few, president of the New York Society, as pres- 
ident. The memorial that the convention sent to Congress, written 
by Carey, set the protectionist “line,” which they were to repeat in 
countless monographs, letters, and petitions. 9 Its main proposal was 

6 In the summer of 1821, the citizens of ardently protectionist Wilming- 
ton, Delaware, presented Carey with a plaque commemorating his services to 
the cause. Niles’ Weekly Register 20 (July 28, 1821): 345. 

7 For examples, see Carey, Essays, pp. 141, 198ff., 230, 318f£, 416. Also see 
Washington (D.C.) National Intelligencer, May 26, 1819. 

8 Of the 36 delegates, there were 12 from New York, 7 from Pennsylvania, 
5 from New Jersey, and 5 from Connecticut. For the personnel of the three- 
day convention, see Niles' Weekly Register \1 (December 11, 1819): 229. 

9 For the petition, see U.S. Congress, American State Papers: Finance 3, no. 560 
(December 20, 1819): 440. Also see the very similar petition of the American 
Society of New York City for the Encouragement of Domestic Manufactures, 
ibid., 561 (December 27, 1819): 443; and, their later petition, ibid., 593 (April 
24, 1820): 532. Leaders were William Few, Peter Schenck, and John E. Hyde. 
Few, a leading lawyer and banker, had had in former days a distinguished career 
in Georgia. Few had been United States Senator from Georgia, a delegate to 
the Constitutional Convention, and Federal Judge. Also see Petition of a Conven- 
tion of Friends of National Industry in Neu> Jersey (Washington, D.C.: Gales and 
Seaton Co., 1820). The American Society of New York, in particular, stressed 
recovery from the depression as the reason for advocating protection. 


The Panic of 1 81 9 

an increase in duties on imported goods to protect American manu- 
factures; two subsidiary proposals were a tax on auction sales, and the 
abolition of time payments on import duties. The memorial began by 
pointing to the nation’s great economic difficulties; in addition to the 
depression of manufactures, commerce and shipping were pros- 
trated, real estate depreciated in value, and “a great portion of our 
mechanics and artists are unemployed.” Agricultural staples were 
reduced in price, and Americans were deeply indebted to foreign 
nations. In the midst of this distress, the cities were being filled with 
foreign manufactured products. Excessive importation of manufac- 
tured goods was the cause of the depression, particularly the perni- 
cious China and East India trade in cheap cottons, which drained 
American specie in exchange for “worthless fabrics.” The solution to 
the depression was, therefore, sharply increased protective duties. 

Carey’s theory of prosperity and depression was simple: free 
trade caused depression, protection would bring prosperity . 10 Sum- 
ming up his position in a comparative “table,” he asserted that the 
results of free trade were, in turn: immense imports; bargain pur- 
chases of foreign goods; a drain of specie abroad; decay of national 
industry; discharge of workmen; growth in unemployment and poor 
relief; bankruptcy of manufactures; failure of merchants; agricultural 
distress and decline in prices of staples; stoppage of specie payments 
by banks; and sacrifice sales of property. Full protection, on the 
other hand, would lead to: imports in moderation only; a prosperous 
industry; full employment for every person able and willing to work; 
disappearance of bankruptcies; rising property values; a secure home 
market for such agricultural products as cotton and wool; and pros- 
perity to merchants. Carey contended that the distress among the 
merchants was due to their excess number, caused by free trade. Lack 

l°Most of Carey’s numerous writings in this period are collected in his 
Essays. See particularly his widely distributed “Addresses of the Philadelphia 
Society for the Promotion of National Industry,” in ibid., pp. 18ff., 36-38. 
Also see Philadelphia Union, September 17, 1819. 

The Movement for a Protective Tariff 


of protection deprived many young men of employment opportu- 
nities in manufactures, forcing them into overemployment in the 
merchants’ field. Protection would shift the excessive number of 
merchants into manufacturing, thereby benefiting manufacturing as 
well as the remaining merchants who would face less competition . 11 

To Carey, the condition of the United States was empirical evi- 
dence of the evils of nonprotection and the alleged adoption of the 
pernicious maxims of Adam Smith, while France and other Euro- 
pean countries exemplified the benefits of protection. Carey 
brusquely dismissed arguments of critics that many fully protected 
countries of Europe were at that moment suffering also from depres- 
sion. Their depression, he asserted, followed from wartime exhaus- 
tion of resources. Carey did not explain why this “exhaustion” 
required several years after the war to bring about a depression . 12 

Carey’s chief associate, Dr. Samuel Jackson, developed a particu- 
larly significant facet of the protectionist argument. Jackson stressed 
that protection was necessary to bring about full employment. Dur- 
ing the Napoleonic wars, he declared, American commerce was 
active enough so that “the labor-power of the country . . . was 
employed to the full.” Now this source no longer existed, and a 
growing portion of the population was unemployed. The develop- 
ment of domestic manufactures was necessary to absorb the grow- 
ing class of now surplus producers. Not only idle labor but also idle 
capital could become employed . 13 Similarly, a leading Pennsylvania 
protectionist, Peter S. Du Ponceau, countered the opposition argu- 
ment that subsidized manufacturing would withdraw capital from 

^Carey, Essays, pp. 67, 362ff. Also see New York Patron of Industry, July 9, 

12 Carey, Essays, pp. 13ff. An almost identical argument was offered by 
Niles. Niks’ Weekly Register 17 (October 23, 1819): 117. Niles also printed 
Carey’s Philadelphia as well as other material, and arguments of his own. Ibid., 
16 (April 17 and August 28, 1819). For Niles as a protectionist leader see Nor- 
val N. Luxon, Niles’ Weekly Register (Baton Rouge: Louisiana State University 
Press, 1947), p. 110. 

13 For Jackson’s writings, see Carey, Essays, pp. 175-87. 


The Panic of 1 81 9 

the more profitable field of farming. He declared that idle capital, as 
well as unemployed textile workers, would enter manufacturing . 14 

To the contention of free traders that free trade would not cause 
unemployment, since labor would shift from the inefficient to the 
efficient industries, Carey replied that people were generally idle and 
lax, hence immobile in their occupations. Therefore, they required 
protection wherever they were situated. Carey did not see that this 
concession shifted much of the blame for unemployment from the 
free trade system to the unemployed themselves . 15 

To the free trade assertion that unemployed workers in manu- 
facturing should return to the soil, Carey countered with an inter- 
esting argument: that manufacturing employees were largely women 
and children, who were unsuitable for farm work and would thus 
remain unemployed. Another Carey argument held that low agricul- 
tural prices demonstrated an agricultural overproduction, just as 
failures of merchants proved an oversupply in trade . 15 

An interesting argument was developed by the protectionist jour- 
nal, Vatron of Industry, in commenting on inflationist proposals to 
increase the quantity of money. 1 ' The proponents assumed, declared 
the Vatron, that the root difficulty was scarcity of money. There was, 
however, a much more significant problem: the impossibility of employ- 
ing money in a safe and profitable manner. The very fact that people 
were in such straits as to clamor for governmental loans indicated that 
they could not employ the money to advantage. In other words, there 
was an absence of productive employment, for money as well as labor. 
Protection was the remedy to bolster industry and give confidence to 
the economy. An article with a similar point of view, by “Plain Truth,” 

14 See the petition for protection of cottons and woolens by Peter S. Du 
Ponceau and other citizens of Pennsylvania, in U.S. Congress, American State 
Papers: Finance 3, no. 569 (January 17, 1820): 454ff. Also the petition of the 
Society of Paper Makers of Pennsylvania and Delaware, ibid., 3, no. 571 (Jan- 
uary 18, 1820). 

15 Carey, Essays, pp. 36-38. 

16 Ibid., pp. 68ff. Also see Edith Abbott, Women in Industry (New York: D. 
Appleton and Co., 1915), pp. 51ff. 

17 New York Patron of Industry, July 1, 1820. 

The Movement for a Protective Tariff 


printed in the Pittsburgh Gazette, stated that there was an abundance 
of idle money capital which would be available for lending, except that 
no profitable employment could be found. 18 

An influential voice for protection was raised by the prominent 
New England Presbyterian clergyman, the Reverend Lyman Beecher. 
In a Thanksgiving sermon in 1819, later reprinted in pamphlet form, 
Beecher called for protection as the chief “means to national pros- 
perity” and recovery. 19 Beecher was one of the most lucid of the pro- 
tectionists. He included the general arguments: that protection would 
provide employment for the idle and a steady home market for 
depressed agriculture. He laid particular stress on the monetary drain 
caused by an adverse balance of trade and the use of protection in 
ending this drain. Beecher also stressed, far more than Carey and his 
groups, that American manufactures as infant industries specifically 
needed protection. Beecher was one of the few protectionists to take 
cognizance of the charge that tariffs might promote domestic 
monopoly and tyrannize over consumers. His answers to the argu- 
ment were thoughtful. In the first place, consumers could repeal the 
tariff if this result ensued. Furthermore, Beecher declared, tariffs 
would not insure an entire domestic monopoly for all products — just 
partial protection for some products. Finally, Beecher asserted that 
any rise in the prices of manufactured goods would only be tempo- 
rary, that new firms would be attracted to the industry and old firms 
would expand, until the prices fell. 

Protectionists, of course, had litde use for laissez-faire theories. A 
particularly clear example was presented by “A Manufacturer” of 
Philadelphia. Lamenting over the depressed conditions, he asserted 
that the government had the duty as well as the power under the 
“general welfare” clause of the Constitution to regulate trade and 
commerce. For the “government is the national physician.” Fur- 
thermore, since the welfare of the manufacturer was clearly identi- 
cal with the nation’s welfare, permanent and full protection was 

18 “Plain Truth,” in Pittsburgh Gazette, reprinted in New York Patron of 
Industry, August 10, 1820. 

19 Lyman Beecher, The Means of National Prosperity (New York: J. Sayre Co., 
1820). Thanksgiving Sermon, December 2, 1819. 


The Panic of 1 81 9 

required in the interest of the nation as a whole. And “if our man- 
ufacturers shall become wealthy, they will circulate and retain the 
precious metals in this country.” 20 

Congress was of course the focal center for protectionist agita- 
tion, since the state legislatures were constitutionally prohibited 
from erecting tariffs. All that a state government could do, in fact, 
was to join in the agitation. There was little controversy on the state 
level since it was not an issue there. 

The outstanding protectionist leader in Congress was Represen- 
tative Henry Baldwin, from Pittsburgh. It was Baldwin who headed 
the newly formed House Committee on Manufactures, which the 
protectionists were able to split off from the traditional Committee 
on Agriculture and Manufactures, during the 1819—20 session. This 
new committee became the fountainhead of future protectionist 
measures. In the 1820 session, Baldwin promptly introduced the 
Baldwin Bill for a protective tariff. The bill passed the House by a 
substantial margin and lost in the Senate by only one vote. 

Baldwin came from one of the very strongest points of the new 
protectionism — western Pennsylvania, centering in Pittsburgh. This 
was one of the leading industrial areas, not only in textiles but also 
in iron and glass production. Pittsburgh was now an area of heavy 
unemployment. For his efforts on behalf of protection from 1819 
to 1821, Baldwin was feted by a citizens’ meeting in Pittsburgh, and 
later affectionately dubbed Father of the American System. 21 Bald- 
win himself was an important iron manufacturer, who owned three 
large rolling mills, including the largest one in the Pittsburgh area. 
His interest in a protective tariff was quite immediate, and he did 

20 “A Manufacturer,” in Philadelphia Union, May 29, 1819. Also see “A 
Friend of His Country,” in Washington (D.C.) National Intelligencer, January 21, 
1819, and report of the joint Committee on Domestic Manufacture of the 
Ohio Legislature, journal of the House of Representatives, 1819—20 (January 24): 

21 Frank W. Stonecipher, “Pittsburgh and the Nineteenth Century Tariffs,” 
Western Pennsylvania Historical Magazine 31 (September-December, 1948): 87ff. 
Also see Russell J. Ferguson, Early Western Pennsylvania Politics (Pittsburgh: Uni- 
versity of Pittsburgh Press, 1938), pp. 236-44. 

The Movement for a Protective Tariff 


not neglect iron in his proposed tariff increases." He also admitted 
that the cut glass industry and others centering in Pittsburgh 
received very large relative increases of protection in his bill. 23 

As might be expected, Pittsburgh was one of the first areas to 
memorialHe Congress for protection. Typical was the memorial 
written by a committee of manufacturers in October, 1818, and 
again at the end of December. Further petitions were sent by the 
newly formed Allegheny County Society for Protecting Agriculture 
and Domestic Manufactures. Pittsburgh, in fact, went further than 
other communities by attempting to establish a cooperative market- 
ing association for the whole town — this was the Pittsburgh Manu- 
facturing Association, founded in 181 9. 24 Not only manufacturers 
but also farmers from the area were seemingly impressed by the 
arguments and anxious to secure a home market in the face of 
falling foreign markets; they petitioned Congress for tariff protec- 
tion for industry. 2 " 1 Many of the petitions signed “practical farmers” 
or “impartial farmers,” however, were written by industrialists, like 
Alexander McClurg, an associate of Baldwin, and secretary of the 
new Society for Promotion of Agriculture and Domestic Manufac- 
tures of Allegheny County. 26 

Pennsylvania support for protection was indicated by the pleas 
for Congressional relief issued simultaneously by Representative 

~M. Flavia Taylor, “The Political and Civic Career of Henry Baldwin, 
1799-1830,” Western Pennsylvania Historical Magazine 24 (March 1941): 37-50. 
Dorfman, Economic Mind, vol. 1, p. 386. 

23 Annals of Congress, 16th Congress, 1st Session (April 21, 1820), p. 1944, 
speech of Representative Baldwin. 

24 First President of the Association was prominent glass manufacturer, 
George Sutton. See William Bining, “The Glass Industry of Western Pennsyl- 
vania, 1797-1857,” Western Pennsylvania Historical Magazine, 19 (December 
1936): 263; George T. Fleming, History of Pittsburgh and Its Environs (New York: 
American Historical Society, 1922), vol. 2, p. 60; Bishop, History, pp. 250ff. 

25 Arthur C. Bining, “The Rise of Iron Manufacture in Western Pennsyl- 
vania,” Western Pennsylvania Historical Magazine, 16 (November 1933): 242; Eise- 
len, The Rise, pp. 46ff. 

26 Kehl, Ill-Feeling, pp. 79, 189. 


The Panic of 1 81 9 

Richard Povall of Philadelphia, head of the Pennsylvania House 
Committee on Domestic Manufactures, and by Senator Charles 
Shoemaker from Berks and Schuylkill Counties, of the Senate Com- 
mittee on Agriculture and Manufactures. 27 In addition to the standard 
tariff arguments, Povall asserted that free trade favored the rich at the 
expense of the poor, since it brought about depression and sacrifice 
sales to the rich. Shoemaker stressed the importance of a tariff on 
iron. Representative William Duane’s report as head of the select 
Committee on Domestic Economy stated that adequate national pro- 
tection to all branches of industry was indispensable to recovery. 28 

Pennsylvania contributed its mite to the protection battie by 
levying a special duty on retailers of foreign merchandise and by 
requiring new licenses from retailers of foreign goods. -9 

Other states in the West joined in the protectionist movement. In 
Ohio, Governor Thomas Worthington called for a tariff to promote 
a shift in resources from overproduced agriculture to manufactures 
and to stop the specie drain. He advocated self-sufficiency and 
stressed a very popular exhortatory theme: calling on all good citi- 
zens to patronize domestic products. One of his major addresses for 
protection was delivered before the Scioto Agricultural Society, in 
1819, perhaps an indication that many Ohio farmers were convinced 
by the home market argument/’ 0 In his 1819—20 message to the leg- 
islature, Governor Worthington recommended the encouragement 
of woolen manufactures. A joint committee of the legislature was 
established in the next session to inquire into possible aid to Ohio 
manufactures by the state government. The report of Representative 

■^Pennsylvania Legislature, Journal of the House, 1819—20 (January 28, 
1820): 413; Journal of the Senate, 1819-20 (January 28, 1820): 219-20. 

Duane Report, for Governor Findlay’s support of protection see Pennsyl- 
vania Legislature, Journal of the Senate, 1820—21 (December 7, 1820): 30. 

■^Philadelphia Union, April 10, 1821. 

-’^Alfred B. Sears, “Thomas Worthington, Pioneer Businessman of the 
Old Northwest,” Ohio State Archaeological and Historical Quarterly 58 (January 
1949): 76; “Source Illustrations of Ohio’s Relations to National History, 
1816-40,” Ohio Archaeological and Historical Publications 25 (1916): 143. 

The Movement for a Protective Tariff 


Joseph Vance (from Champaign County) recommended a state loan 
to a Steubenville woolen factory. 31 

General William Henry Harrison ran for the Ohio State Senate in 
1819 on a pro-tariff as well as an anti-bank platform. As chairman 
of the Board of Supervisors of Tioga County, General Harrison 
spurred a series of resolutions to alleviate the hard times. The spon- 
sors agreed to abstain from the use of any imported goods, and to 
give preference to domestic articles/’ 2 Successfully elected, Harrison 
moved a resolution in the state legislature to support increased tar- 
iffs to bring about recovery of domestic manufactures. 33 

Kentucky was also enthusiastically protectionist, as typified by 
the Speaker of the House in Washington, Henry Clay, and this 
sentiment was accompanied by a widespread campaign for volun- 
tary preference for domestic products. Ladies’ hats made of local 
grass were recommended as being as good as the finest wool, 
while roasted barley was used in many cases as a substitute for 
imported coffee. 34 

Many Missourians were eager for protection for Missouri’s lead, 
iron, and salt industries. The protectionist cause was particularly 
taken up by the St. Louis Enquirer and the St. Charles Missourian , 35 

Delaware is an interesting example of the swell of protectionist 
sentiment. At the beginning of the crisis, in 1819, the Delaware Sen- 
ate passed a resolution declaring that manufactures were a great 
national concern, in the public interest, and hence required protec- 
tion. The resolution passed the Senate, but lost in the House by a 
vote of 7 to 10. 36 

31 Ohio General Assembly, journal of the Senate, 1819—20 (January 25, 1820): 

~ ,2 New York Columbian, November 10, 1819. 

33 Boston New England Palladium, January 7, 1820. 

34 Gronert, “Trade,” pp. 313-23. 

35 Anderson, “Frontier Economic Problems, II,” p. 199. 

36 Delaware General Assembly, journal of the House of Representatives, 1819 
(February 2, 1819): 138. 


The Panic of 1 81 9 

Delaware, however, became one of the prime centers of the 
protectionist movement. E.I. du Pont, from Wilmington, the 
nation’s leading powder manufacturer, was one of that movement’s 
original sponsors . 37 By the next session, sentiment had changed. 
Representative Whitely reported from the House Committee on 
Agriculture and Manufacturing of Delaware that the origin of the 
distress was the present commercial system, aiding as it did foreign 
manufactures at the expense of domestic manufactures. The dis- 
tress of domestic manufactures had thrown agriculture into depres- 
sion for lack of a home market. Whitely’s concluding resolution ask- 
ing Congress for protection was adopted unanimously . 38 By a slim 
margin, and after a sharp battle, the Delaware legislature took supple- 
mental measures to aid their manufactures, exempting all owners of 
cotton and woolen machinery from either taxes or the debt-paying 
execution process . 39 A proposed blow at imports was defeated, how- 
ever, when a bill narrowly failed to pass which provided that peddlers 
must acquire a license under the condition that they sell no foreign 
goods . 411 Supposedly “free-trade” North Carolina, however, doubled 
its tax on peddlers who sold goods imported into the state. Kentucky 
debated a similar measure . 41 

Neighboring Maryland boasted two of the nation’s leading pro- 
tectionists: Hezekiah Niles, who worked tirelessly for protection in 

~ ,7 Du Pont was a delegate to the protectionist Convention of December 
1819. Niks’ Weekly Register 18 (December 11, 1819): 229. 

38 Delaware General Assembly, Journal of the House of Representatives, 1820 
(January 29, 1820): 109-11. 

39 Ibid., (February 10, 1820): 191. Governor John Clarke heartily endorsed 
protection and the subsidy measures. See Clarke’s message, ibid. (January 5, 
1820): 8—11. New Hampshire rejected a similar proposal by a three-to-two 
majority. See New Hampshire General Court, Journal of the House, 1819 (June 
28, 1819): 300ff. 

40 Delaware General Assembly, Journal of the House of Representatives, 1820 
(February 4, 1820): 141f£ 

41 North Carolina General Assembly, Acts, 1821, p. 3; also see C.S. Sydnor, 
Development of Southern Nationalism, 1819-48 (Baton Rouge: Louisiana State 
University Press, 1948), p. 118. 

The Movement for a Protective Tariff 


his Weekly Register; and Daniel Raymond, whose Thoughts on Political 
Economy strongly backed a protective tariff and was a treatise partic- 
ularly designed to be a counterweight to the free trade position of 
the classical economists. 

New York was the site of one of the main organs of the protec- 
tionist movement, the New York Columbian, a paper reflecting De 
Witt Clinton’s views . 42 The Columbian pursued the cause through let- 
ters and editorials and reprinted Carey’s Addresses of the Philadel- 
phia Society. The emphasis in New York was on the cotton manufac- 
ture. One letter stressed that protection to cottons would be particu- 
larly useful to the state. Further, protection would inspire confidence 
and thus “would produce capital” and remedy the depression. 4 ’ 

One of the most interesting protectionist writings was an article 
in the Columbian stressing that protection would furnish “constant 
employment.” As a remedy the writer, “H.B.”, further suggested 
that the state establish a woolen and cotton factory, state owned, to 
teach the youth of New York City the “useful art of spinning and 
weaving — the state to furnish the raw material and receive the pro- 
ceeds as it is finished for the consumer.” He also suggested a state 
owned cotton and woolen warehouse to sell the cloth wholesale and 
retail . 44 Everyone was urged to wear only domestic clothing, and the 
clergy were particularly requested to set the proper example. 

One of the most ambitious efforts of the protectionists in 
this period was the establishment of a semi-weekly newspaper in 
New York, The Patron of Industry, to serve as the bellwether of the 

42 The subject here deals only with arguments over protection that had the 
depression as their base. Thus, the New York American, a pro-Tammany, neo- 
Federalist publication, supported protection on the grounds of retaliation 
against British restrictions. See New York American, September 22, 1819. Also 
see “Zeno” in Washington (D.C.) National Intelligencer, November 13, 1819. 

43 “A New York Gentleman to a Friend in Boston,” New York Columbian, 
August 11, 1819. Also see ibid., June 10 and June 12, 1819. 

44 “H.B.” in ibid., February 19, 1819. For emphasis on the protection for 
cotton and woolens also see the petition of the citizens of Middletown, Con- 
necticut, U.S. Congress, American State Papers: Finance 3, no. 568 (January 10, 
1820): 45 and the New York Columbian, August 11, 1819. 


The Panic of 1 81 9 

movement. It ran a brief course in 1820 and 1821, at the height of 
this wave of tariff agitation. The Patron was published by the 
National Institute for the Promotion of Industry. 45, 46 

The two major groups in New York State politics were the fol- 
lowers of Governor Clinton and the bitterly opposed Tammany fac- 
tion of the Democratic-Republican party. That the two groups were 
not very far apart on the tariff as well as on monetary questions may 
be seen in the famous Tammany Address of John Woodward. One of 
Woodward’s many proposed remedies for the crisis was the absolute 
prohibition against importing any article that could be manufac- 
tured domestically “on tolerable terms.” To supplement these legal 
measures, all citkens and governments were expected to give pref- 
erence to American products. 47 

New England was a more difficult field for protectionists to 
plow. New manufacturers in New England were largely in the cot- 
ton industry, and tariff agitation from this area centered on this 
commodity. An interesting development was the use of the Wash- 
ington Insurance Company of Providence, insurer for most of the 
Rhode Island cotton mills, as lobbyist for protection of the cotton 
industry. The protectionists also established a Manufacturers’ and 
Farmers’ Journal in Rhode Island during 1819. 

By May, 1820 (when the Baldwin Bill came to a vote in Con- 
gress), seven state legislatures had passed resolutions urging Con- 
gress to pass the bill. These states were Rhode Island, Connecticut, 
New York, New Jersey, Pennsylvania, Delaware, and Ohio. 48 The 
heavy investments in cottons and woolens were stressed in the 
Pennsylvania declarations, and the textiles were stressed by New 

45 For an example of the Patron’s use of poetry as a weapon, see New York 
Patron of Industry, July 22, 1820. 

46 For an example of protectionist opinion upstate, see Albany Argus, Sep- 
tember 17, 1819. 

47 Woodward, Tammany Address, p. 1 8. 

48 The following states — Vermont, Maryland, Kentucky, Tennessee, Indi- 
ana, Illinois — were also alleged to be overwhelmingly protectionist, Annals of 
Congress (May 4, 1820), p. 655. 

The Movement for a Protective Tariff 223 

York Governor De Witt Clinton, in his advocacy of protection . 49 
Under Clinton’s leadership, New York extended subsidies to woolen 
manufactures in the state. 

Many minor industries, in addition to the major ones of cotton, 
wool, and iron, asked for protection. Typical was the petition of the 
Society of Paper Makers of Pennsylvania and Delaware. They 
pointed to the extent of paper manufacture and the number 
employed in the industry, and advocated protection to remedy its 
distress and to keep the profit of its manufacture in the country . 50 
Even the book printers demanded protection, headed by Matthew 
Carey, a leading Philadelphia printer . 51 The protectionists, while 
concentrating on the major industries, were generally quite willing to 
include numerous industries under the protection umbrella. “An 
Agriculturist” advocated absolute prohibition of all imports of for- 
eign industry, in order to build up a home market for American 
grain produce . 52 Hezekiah Niles, though a staunch protectionist 
leader, balked at this trend. He stated emphatically: 

most of these manufacturers are prostrated not for want 
of protecting duties, but in consequence of general 
impoverishment of die country arising principally from 
want of protection to die great leading branches of cot- 
ton, wool, and iron. 53 

Emphasis on cotton and wool and the lure of a home market 
for agriculture were, in fact, the features of a typical “grass roots” 

^Pennsylvania Legislature, Journal of the House, 1819—20 (January 28, 
1820): 41 Off. New York Evening Post, January 30, 1818. 

50 U.S. Congress, American State Papers: Finance 3, no. 571 (January 18, 1820): 
460. Leaders were Mark Willcox, president, and Thomas Gilpin, secretary. 

51 Ibid., 3, no. 572 (January 26, 1820): 462ff. 

52 “An Agriculturist,” in Philadelphia Union, October 19, 1821. Also see 
speech by Gideon Granger, president of the Ontario, New York Agricultural 
Society, New York Patron of Industry, December 13, 1820, and ibid., December 
23, 1820; ‘ Agricola of Ontario, N.Y.,” in Washington (D.C.) National Intelli- 
gencer, January 25, 1820. 

53 Niles' Weekly Register 17 (October 23, 1810): 117. 


The Panic of 1 81 9 

tariff petition. Thus, some citizens of Middletown, Connecticut, in 
a petition to Congress, stressed the advantage to agriculture of 
domestic manufactures. 54 Using an “infant industry argument,” 
they declared that 

adequate protective duties . . . would soon create or 
revive such a number of manufacturing establishments, 
that ere long their rivalry would probably reduce the 
price of their fabrics below the present standard of 
those imported. 

On the other hand, if we now permitted American manufactures to 
die of neglect, we would have to buy only European goods at an 
exorbitant advance and reimburse manufacturers for their present 
losses. In essence, this was a forerunner of the classic argument that 
a firm undercuts prices in order to crush its rival and later extract a 
monopoly price. 

Protection reached a peak in Congress late in the 1819—20 ses- 
sion, with the battle over the Baldwin Bill. 

The heart of the Baldwin Bill was a rise in tariffs on cottons 
and woolens from 25 percent to 33 percent duty, plus a minimum 
for cheap cottons, the total increase in cotton duty being 50 to 70 
percent. Tariffs were also to be increased on a variety of manu- 
factured goods. 

Mr. Baldwin began the debate on the bill in the House, stressing 
the depression, the decline in property values, and unemployment. 51 
Debate in the Senate was led by Senator Mahlon Dickerson of New 
jersey, chairman of the Committee of Manufactures which reported 
the bill. He stressed the dominant theme of the protectionists — the 
great distress of the country and protection as the remedy. Protec- 
tion would provide a home commerce and a home market for agri- 
culture, raise property values, cure unemployment, eliminate the 
unfavorable balance of trade and the specie drain. Also speaking for 

54 U.S. Congress, American State Papers: Finance 3, no. 568 (January 10, 1820). 
Leaders of the petition were Jonathan Lawrence Lewis, chairman, and Arthur 
W Magill, secretary. 

55 Annals of Congress, 16th Congress, 1st Session (April 21, 1820), p. 1944. 

The Movement for a Protective Tariff 


protection was Senator James J. Burrill, Jr., of Rhode Island. The 
Baldwin Bill passed the House by a considerable majority, 90 to 69. 
It failed in the Senate by only two votes, 20 to 22. 56 Geographically, 
taking both Houses into consideration, the pattern of the voting 
was as follows: 

I r oting on the Baldwin Tariff Bill 



New England 



Middle Adantic 






South (including Southwest) 





In the Middle Atlantic states, Maryland supplied almost the 
entire anti- tariff vote. The bulk of the protectionist majority was 
supplied by four states (House figures only): New York (25—0); 
Pennsylvania (22—1); New Jersey (6—0); Ohio (6—0). 

The Baldwin Bill was reintroduced in January, 1821, but with lit- 
tle success. The beginnings of business recovery were becoming 
apparent, and protectionist ardor cooled considerably. It was finally 
able to succeed three years later. 37 

Not all protectionists confined their doctrines to the national 
level. Every once in a while, a protectionist writer would accept the 
challenge of his opponents and push protection doctrine near to its 
logically absurd limit. Thus, Matthew Lyon of Eddyville, Kentucky, 
advocated a state law prohibiting imports into Kentucky of all “for- 
eign” cotton goods and other foreign manufactured products. 58 
“Plain Truth” in the Pittsburgh Gazette suggested a western tariff to 
prevent a continued specie drain from the West, and to develop its 

56 Ibid. (May 4, 1820), pp. 655ff. Also see Niks’ Weekly Register 18 (May 6, 
1820): 169. 

57 Stonecipher, “Pittsburgh.” 

58 The Lexington Kentucky Reporter, in which the suggestion appeared, 
lamented that such a step would probably be unconstitutional. See Washing- 
ton (D.C.) National Intelligencer, September 22, 1819. 


The Panic of 1 81 9 

own manufactures to provide a home market for western expendi- 
tures. He advocated western secession if necessary for this pur- 
pose. 39 “Mechanic of Detroit” went even further. He attributed the 
economic difficulties of the Detroit artisans to the merchants of the 
town importing large quantities of goods that could have been 
made in Detroit. Merchants, he asserted, should only purchase the 
product of local, rather than of “foreign,” mechanics. 60 One Penn- 
sylvanian evolved an ingenious scheme reminiscent of later Ameri- 
can development, to exclude imported manufacture by using the 
state power of quarantining commerce ruinous to morals, industry, 
and “political” health. 61 “A Pennsylvanian” suggested that every 
retailer in the state be forced to take out a state license, and that the 
condition of the license be the retailers’ agreement not to sell any 
imported goods on credit to anyone, except tools for manufacturers 
or mechanics. 62 This would prevent people from running into 
excessive debt and help out domestic manufactures. 

The protectionist movement encountered formidable opposition 
that was able to defeat its proposals, although four years later pro- 
tection was to triumph in the Tariff of 1824. Effective opposition 
came from the Monroe administration. The Washington National 
Intelligencer, known as reflecting administration views, strongly 
opposed higher tariffs. Ardent opposition came, as is well known, 
from the South. Strongly agricultural and relying on export markets 
for their staples of cotton and tobacco, the South opposed the pro- 
tectionist measures vigorously. Southern opposition in the Congres- 
sional tariff vote was virtually unanimous. 

Particularly active opposition to the tariff came from John Tay- 
lor of Caroline, who wrote many memorials for Agricultural Soci- 
eties of Virginia, attacking the tariff. The focal point of opposition 

5 ^“Plain Truth,” in New York Patron of Industry, August 10, 1820. 
60 Detroit Gazette, April 23, 1819. 

61 Eiselen, The Rise, p. 53. 

62 “A Pennsylvanian,” in Philadelphia Union, February 11, 1820. 

The Movement for a Protective Tariff 


in Congress was the House Committee on Agriculture, which pre- 
pared comprehensive anti-tariff reports based primarily on the 
Taylor memorials. Also actively opposed to an increased tariff were 
merchant groups in the North — particularly Salem, Massachu- 
setts — and the Chamber of Commerce of Philadelphia, which sent 
opposition memorials to Congress. 63 Whereas the protectionists 
devoted a great deal of attention to the depression, the “free 
traders” in opposition devoted little space to the depression, since 
they could not counter with a simple remedy of their own. Free 
traders generally concentrated on general political or economic 
questions such as, the benefits of international trade and the divi- 
sion of labor, the danger of monopoly, the injustice of special priv- 
ilege, and the morals of factory life. 

Some free traders undertook, however, to rebut the depression 
argument. Counters took two general forms: (1) denying the 
depression was caused by lack of protection and that the tariff 
could provide a remedy, and (2) asserting a tariff would aggravate 
rather than relieve the hard times. On the first point, the free traders 
argued that the depression was universal and strong in the leading 
European countries. Yet, they were heavily protected; therefore, a 

63 Thus, see U.S. Congress, American State Papers: Finance 3, no. 596 
(November 27, 1820): 540, petition of citizens of Petersburg, Virginia, Major 
Thomas Wallace, chairman, John F. May secretary; ibid., 3, no. 603 (December 
18, 1820): 577, petition of United Agricultural Society of Virginia, Richard 
Field, president, Edward Ruffin, secretary; ibid., 3, no. 604 (December 22, 
1820): 578, petition of Roanoke Agricultural Society, Thomas M. Nelson, 
president, Charles L. Wangfield, secretary; ibid., 3, no. 564 (January 3, 1820): 
447, petition of Virginia Agricultural Society of Fredericksburg, Virginia, 
James M. Garnett, president, William G. Gray, secretary. These men were lead- 
ing planters of Virginia and the South. Garnett was a friend of Madison, Tay- 
lor, and Randolph, and a leader in the anti-tariff struggle. He later became first 
president of the United States Agricultural Society. Ruffin was a famous agri- 
cultural experimenter, later publisher of the Farmers’ Register. 

Also see ibid., 3, no. 573 (January 31,1820): 463, petition of Merchants of 
Salem and towns in vicinity; ibid., 3, no. 594 (April 28, 1820): 533, petition of 
Chamber of Commerce of Philadelphia; president was Robert Ralston. 


The Panic of 1 81 9 

protective tariff in the United States could offer no cure. This was 
a leading argument of the House Agriculture Committee. 64 

Condy Raguet, only of late a protectionist himself, 65 in his 1820 
report on the depression to the Pennsylvania Senate, brought up the 
point that if the protectionists were right, the manufacturing towns 
should have been the hardest hit by the depression, whereas hard 
times were universal throughout the nation. 66 

The positive argument against the new tariff was that it would 
worsen the depression rather than improve it. It would largely do so 
by increasing the depression of agriculture and commerce, which 
would be taxed for the benefit of possible new industries. Thus, the 
merchants of Portland (Maine) warned that higher tariffs would 
destroy their maritime commerce and also the nation’s agricultural 
markets abroad. 6 The Portland petition was endorsed by the Port- 
land Gazette, the Boston Gazette, and by a convention of Maine mer- 
chants and agriculturists in Portland. 

Merchants of Salem, Massachusetts, in a petition written by the 
famous Supreme Court Justice Joseph Story, turned the tables on the 
protectionists by accusing them of being visionary theorists, heed- 
less of the practical effects tariffs would have in destroying the cap- 
ital and profits of commerce. Tariffs, they declared, would worsen 

64 Thus, see Report of House Committee on Agriculture, ibid., 3, no. 613 
(February 2, 1821): 65ff. Also see memorial of the United Agriculture Soci- 
eties of Virginia, written by John Taylor, ibid., 3, no. 570 (January 17, 1820): 
458ff. Secretary of the societies was Edward Ruffin, and the president was 
John Pegram. Also see “Public Good,” in Boston New England Palladium, Sep- 
tember 28, October 1, 1819. 

65 Dorfman, Economic Mind, vol. 1, p. 306. 

6<5 Raguet Report, 1820. 

67 From the Portland Gazette, reprinted in the Philadelphia Union (August 
6, 1820). Leaders were Arthur McClellan, chairman, and Henry Clarke, secre- 
tary. Also see the report of the Convention of Merchants of Portsmouth, 
New Hampshire, in Washington (D.C.) National Intelligencer, October 25, 1820. 
See “Nob,” a Virginia correspondent, ibid., May 8, 1819. 

The Movement for a Protective Tariff 


the depression by increasing unemployment in commerce. 68 Many 
critics pointed out that agricultural exports would be damaged because 
lower imports would supply less dollars abroad with which to buy 
American products. 69 A New England writer, “Public Good,” asked 
his readers to suppose that all imports into the country were prohib- 
ited. American mechanics and farmers would then have fewer means 
with which to purchase domestic manufactures than before. Importers 
would earn less and exporters’ markets abroad would suffer. 70 

A group of Boston merchants charged that a protective tariff 
would cause widespread starvation among the mechanics and mer- 
chants of the seaports. 71 More specifically, merchants and distillers 
of Boston objected to a proposed import duty on molasses. They 
pointed to their investment of $11 million in buildings, protesting 
that a tariff would lead to the unemployment of thousands of peo- 
ple in the molasses and rum trade. 72 

A more general argument held that protective tariffs would neces- 
sarily cause unprofitable business. An interesting presentation of this 
view appeared in a memorial by citizens of Charleston, written by the 
wealthy South Carolina banker and landowner Stephen Elliott. 73 
Elliott pointed out that a tariff would penalize labor and capital 
employed in commerce and agriculture, and would divert factors 

68 U.S. Congress, American State Papers: Finance 3, no. 573 (January 31 , 1 820): 
463. The same position was taken by the Chamber of Commerce of Philadel- 
phia, ibid., 3 no. 594 (April 28, 1820): 533f£, which pointed to the plight of 
commerce and surplus agriculture until domestic manufactures would be 

69 Thus, see “Cato,” in Washington (D.C.) National Intelligencer, April 18, 1820. 

70 “Public Good,” in Boston New England Palladium, September 28, 1819. 

71 In Boston Daily Advertiser, reprinted in the New York Evening Post, Sep- 
tember 13-14, 1820. 

72 U.S. Congress, American State Papers: Finance 3, no. 558 (April 13, 1820): 
522. For other attacks on protection as a depressing force in the economy, see 
Memorial of a Convention of Merchants of Philadelphia by William Bayard, 
president, ibid., 3, no. 597 (November 27, 1820): 543; and Philadelphia Union, 
December 5, 1820. 

73 U.S. Congress, American State Papers: Finance 3, no. 600 (December 8, 
1820): 563. On Elliott, see Dorfman, Economic Mind, vol. 1, pp. 370-71. 


The Panic of 1 81 9 

from the latter to manufacturing. But if labor and capital employed in 
manufacturing produced as much profit as that employed in the other 
occupations, a tariff would be unnecessary, since labor and capital 
would then shift to manufacturing without government help. If man- 
ufacturing were not as profitable then tariffs would be forcing labor 
and capital into unprofitable employments . 74 

One of the most sophisticated expositions of the doctrine that 
increased tariffs would only aggravate the depression was delivered 
by John Taylor of Caroline. Thus, in his memorial of the farmers 
and merchants of Fredericksburg, Virginia , 73 Taylor established this 
chain of causation: tariffs cause diminished imports, that would in 
turn bring about restriction of exports, which would cause a fall in 
the prices of domestic products. The depression had already 
brought about great price declines, declared Taylor, which were 
equivalent to an increased value of the money unit. The result was 
an increase in the real burden of tariff duties. The further price fall 
following higher tariffs would add still more to the real burden. 

Taylor regarded tariffs as a burden because he saw them as taxes 
on consumption; a tariff was a tax which diminishes consumption, 
hence diminishes production and prosperity. Taylor wrote: 

The tariff ... is a tax upon the national ability . . . since it 
was imposed, one half the national ability to pay taxes has 
been destroyed by the doubled value of money, and a 
reduction to tire same amount in the value of products 
and property. Therefore tire burden of taxation has been 
doubled by circumstances without the agency of legisla- 
tion ... if die whole duty is continued, it will compel the 
payers to retrench their consumption. . . . The enjoyments 
of consumption are the food of industry; diminish them, 
and it flags; leave them free, and it is invigorated. 76 

74 See the statement by the influential Representative William Lowndes, a 
planter from South Carolina, in Niles’ Weekly Register 18 (June 10, 1820): 259, 
and a brief statement by a committee of citizens of Boston made after an 
address to them by Representative Daniel Webster, in Washington (D.C.) 
National Intelligencer, October 14, 1820. 

^Philadelphia Union, August 29, 1820. 

76 Ibid. 

The Movement for a Protective Tariff 


Taylor also pursued this reasoning to advocate reducing tariffs in 
order to reduce the real tax burden on consumption — a surprisingly 
modern position. The House Committee on Agriculture, in its anti- 
tariff report, echoed this position .' 7 Others also advocated reduc- 
tion in existing tariff as a method of remedying the depression. For 
example, the National Intelligencer early in the depression declared 
that a depression needed a reduction in tariffs instead of an increase, 
to benefit the harassed merchants . 78 

An interesting counter on the unemployment problem was deliv- 
ered by one of the most influential of the anti-protectionists, the 
leading New York merchant and politician, Churchill C. Cambre- 
leng . 79 The United States, he declared, was underpopulated, so 
unemployment could not be a permanent problem. Present unem- 
ployment was merely temporary, and even natural. “Every nation 
experiences a want of employment at intervals, amidst the natural 
fluctuations of industry.” 

There was, of course, a good deal of deprecating of the manu- 
facturers asking for protection. Cambreleng denounced the protec- 
tionists as idlers and malcontents, or as wartime speculators in man- 
ufacturing stock who wanted a government subsidy. John Taylor laid 
the plight of the manufacturers at the door of the banks; these were 
speculative manufacturers who had invested with “fictitious capital” 
supplied by the banks, and now were left without funds as a result 
of credit contraction . 811 

The New Orleans Louisiana Gazette spoke for many anti- tariff 
readers when it stated: “In these times of extraordinary embarrass- 
ment, we ought particularly beware how we prune the wing of honest 

77 U.S. Congress, American State Papers: Finance 3, no. 613 (February 2, 1821): 

78 Washington (D.C.) National Intelligencer, May 29, 1819. 

79 Cambreleng, An Examination, passim; Dorfman, Economic Mind, vol. 1, 
pp. 371-72. 

80 Memorial of United Agricultural Societies of Virginia, U.S. Congress, 
American State Papers: Finance 3, no. 580 (January 17, 1820): 457. 


The Panic of 1 81 9 

industry” and concluded, “laisse^-nous faire. ” 81 An amusing attack on 
the tariff from the laissez-faire point of view, by “The Friends of 
Natural Rights,” attacked “Professor Matthew Carey” and “Profes- 
sor Hezekiah Niles” for implicidy advocating government ownership 
and management of all property, with the government guaranteeing 
full employment (no moments of idleness) for all capital and labor . 82 
The writers thus described the “Careyan Scheme of Government”: 

The people of the United States being in a very unen- 
lightened condition, very indolent and much disposed to 
waste their labor and their capital . . . the welfare of the 
community requires that all goods, wares, merchandise, 
and estates . . . should be granted to tire government in 
fee simple, forever . . . and should be placed under the 
management of a Board of Trustees, to be styled the 
Patrons of Industry. The said Board should thereupon 
guarante [sic] to the people of the United States that 
thenceforth neither the capital nor labor of this nation 
should remain for a moment idle. 

Among the maxims that such a Board would try to inculcate in the 

It is a vulgar notion that the property which a citizen 
possesses, actually belongs to him: for he is a mere ten- 
ant, laborer, or agent of die government, to whom all 
die property in the nation legitimately belongs. The gov- 
ernment may therefore manage this property according 
to its own fancy, and shift capitalists and laborers from 
one employment to another. 

These writers thus saw in the tariff position a logic implicitly lead- 
ing to a wholly government-planned economy. 

81 New Orleans Louisiana Gazette, May 6, 1820; Tregle, “Louisiana and the 

82 Washington (D.C.) National Intelligencer, August 25, 1821. The “Friends of 
Natural Rights” also attacked “Professor Daniel Raymond” for presuming to 
correct Adam Smith, and faring no better than Lord Lauderdale. 

The Movement for a Protective Tariff 


In Congress, the leading speeches opposed to the Baldwin Bill 
were delivered by future president John Tyler, Representative from 
Charles City County in eastern Virginia, and by Representative 
Nathaniel Silsbee, from the great shipping center of Salem, Massa- 
chusetts. 8 ’ Tyler, like Story, denounced the protectionists as hasty 
theorists, willing to destroy commerce and agriculture to put their 
experiment into practice. Tyler also brought up the interesting and 
important point that, in the long run, even manufacturers would not 
benefit from the subsidy, since competition would flow into the 
protected industries until their rates of profit were no higher than 
in any other industry . 84 Silsbee also stressed the aggravating effect 
the tariff would have on the existing depression in the seaports . 8 " 1 

The protectionists offered two subsidiary measures as part of 
their political program. Both were designed to supplement tariffs in 
restricting imports. One proposed that the government cease grant- 
ing time to importers for payment of duties. The particular criticism 
of this system was that the debt induced excessive imports. Some 
merchants joined the protectionists in this proposal in order to limit 
the competition of those fellow-importers who had meager capital, 
and were therefore dependent on credit . 86 The Convention of 
Friends of National Industry began the drive to abolish credits on 

83 Tyler came from an aristocratic family. Later Governor and U.S. Senator, 
as well as President, he was a Jacksonian until the removal of deposits and 
sub-treasury issues arose. Silsbee was a leading Salem merchant and 
shipowner. Formerly noted as a Jeffersonian, Silsbee was a director of the 
Boston branch of the Bank of the United States and later U.S. Senator. 

^Annals of Congress, 16th Congress, 1st Session, pp. 1952ff. 

83 Ibid., pp. 1987ff. 

86 Petition of Merchants and Citizens of Baltimore, U.S. Congress, Ameri- 
can State Papers: Pittance 3, no. 565 (January 5, 1820): 448. The Baltimore mer- 
chants were led by William Patterson. Also see the petition of the New York 
City Merchants, in New York Daily Advertiser, December 14, 1819; Convention 
of Friends of National Industry, Petition; “No Inflation,” New York Commer- 
cial Advertiser, December 21, 1819; “C.W.” in New York American, February 9, 
1820; New York Evening Post, December 20, 1819. 


The Panic of 1 81 9 

duties. It pointed out that since the war many foreign merchants had 
been induced by the credits to import heavily, thereby depressing 
domestic manufactures and injuring American mercantile stability . 87 

Conversely, other merchants fought back in defense of the cred- 
its system. The Chambers of Commerce of Philadelphia and New 
York City defended the system. They charged that abolition would 
repress enterprise, credit, and commerce. The New York Daily 
Advertiser pointed out that abolition would help the large capitalists 
at the expense of the small, since it was the young and enterprising 
merchants who would be forced to abandon trade for lack of capi- 
tal . 88 John Pintard — leading merchant, founder of the New York 
Historical Society, and Secretary of the New York City Chamber of 
Commerce — taking a position similar to John Taylor on the tariff, 
charged that imposition of a cash duty would increase the tax bur- 
den on commerce. He estimated that cash duties would double the 
real value of taxes on imports . 89 

A group of Baltimore merchants headed by Isaac McKim, adopted 
this ingenious reasoning: “all duties on imports are taxes on con- 
sumption.” An importer had to have time to convey the goods to con- 
sumers. In every government grant of credit to the importers, the time 
period of the credit fell short of the period before which the capital 
of the merchants could be reaihed . 911 The Baltimore merchants struck 

87 U.S. Congress, American State Papers: Finance 3, no. 560, pp. 440ff. Also 
see petition of William Few’s American Society of New York City for 
Employment of Domestic Manufactures, ibid., no. 561, p. 443; Bishop, History 
of Manufactures, pp. 256ff. 

88 New York Daily Advertiser, December 17, 1819, and February 11, 1820; 
“Galeani,” in New York Evening Post, April 25, 1820; Cambreleng, An Examina- 
tion, pp. 151-54. (James De P. Ogden) “Publeus,” in New York Commercial Adver- 
tiser, December 15, 1819; John Pintard, New York Daily Advertiser, January 6, 
1820; “R.L.” in Washington (D.C.) National Intelligencer, December 30, 1819. 

89 U.S. Congress, American State Papers: Finance 3, no. 567 (January 6, 1820): 

90 Ibid., 3, no. 579 (February 8, 1820): 484ff. Also see Petition of Chamber 
of Commerce of Philadelphia, Robert Ralston, president, ibid., 3, no. 586 
(March 11, 1820): 518. 

The Movement for a Protective Tariff 


a similar note as did Cambreleng — cycles of trade were inevitable in 
business affairs: 

Commerce always tends to extremes and excesses of 
trading occur under all systems and in the finest periods 
of commercial prosperity. But if importation does 
sometimes swell until business stagnates, commerce has 
a power of self-correction and the resource of self- 
recovery, and reverses soon allay the intemperate ambi- 
tion of gain. 

One proponent of credit on duties went to the extent of pro- 
posing a lengthening of the credit period as a remedy for the depres- 
sion . 91 He reasoned as follows: A particular depressant in the com- 
mercial situation was the large amount of custom house bonds 
owed by merchants for payment of import duties. They could not 
sell the goods they imported because of the “scarcity of money and 
the stagnation of business.” Therefore, to acquire the money to pay 
the bonds, the merchants had to discount their bills at the banks. 
After the merchants paid the bank notes into the Treasury in pay- 
ment of their debts, the Treasury deposited the notes in the Bank 
of the United States, thereby adding to the pressure on state banks 
to redeem their notes in specie. This exerted deflationist pressure, 
obliging banks to curtail greatly their loans and discounts. Thus, the 
author demonstrated how taxes exerted a deflationary effect on the 
money supply and economy. 

Senator William A. Trimble (Ohio), an ardent protectionist, 
introduced a bill to suspend credits on duties, but the bill failed to 
come to a vote in Congress, as the failure of other protectionist 
measures doomed this one as well. 

The other subsidiary measure was a prohibitory tax on sales at 
auction. Protectionists charged that auction sales, which had 
become a prominent form of wholesale import sales after the war, 

91 From the Baltimore Telegraph, reprinted in the Richmond Enquirer, Janu- 
ary 1, 1819. 


The Panic of 1 81 9 

spurred cheap foreign competition with American products. 9- Thus, 
a group of Merchants and Citizens of Philadelphia, in a memorial 
to Congress, pointed to the pernicious effects of auction sales dur- 
ing the previous few years. 9 ’ Auction sales provided a means for 
agents of foreign exporters to dispose of their goods easily. These 
channels had been deluged with every sort of imported goods, fos- 
tered by the “extreme elevation of the market at the close of the 
war, owing to the few foreign productions in the country at the 
time.” Auction sales of imported goods had wrecked domestic 
manufactures, by underselling the established merchants. Here again 
the leading role in attacking auctions was taken by merchant com- 
petitors of the auction system. 94 Critics also charged that auction 
prices fluctuated more rapidly than regular prices, since they were 
not regulated by cost. A prohibitory tax had first been proposed by 
a group of New York City merchants and traders as early as 1817. 95 
Merchants were, however, by no means unanimous in advocating a 
prohibitory tax on auction sales. Baltimore merchants split on the 
issue, and the Chamber of Commerce of New York City opposed 
a tax on auctions. 96 The drive for a 10 percent tax on auction sales 
was launched in earnest by the protectionist Convention of Friends 
of National Industry. 97 It pointed out that large quantities of 
imported clothes were sold at auction. Even domestic goods sold at 

92 On the rise of the auction system in this period, see Westerfield, “Early 
History,” pp. 200ff. 

^Philadelphia Union, February 8, 1820; “H.B.” in New York Columbian, 
February 19, 1819. 

94 “A Pennsylvanian,” Philadelphia Union, February 11, 1820; “C.W” in New 
York American, February 9, 1820; New York Evening Post, December 20, 1819. 

95 New York Evening Post, January 11, 1817. 

96 Bishop, History, vol. 2, p. 258. U.S. Congress, American State Papers: Finance 3, 
no. 567 (January 6, 1820): 51. Petition of Chamber of Commerce of New York 
City, William Bayard, president, John Pintard, secretary. 

97 Ibid., 3, no. 560 (December 20, 1819): 440ff. Also petition of citizens of 
Middleton, Connecticut, ibid., 3, no. 568 (January 10, 1820): 452. Also see 
Convention of Friends of National Industry in New Jersey, Petition, passim. 

The Movement for a Protective Tariff 


auction were frowned on, because auctions generally promoted 
goods of “inferior quality.” The proposed 10 percent tax was to 
apply to both foreign and domestic goods at auction. 

Congress, however, rejected a bill, submitted by Representative 
Baldwin at the same time as his tariff proposal, to levy a 10 percent 
tax on auction sales. 98 Baldwin charged that the auction system was 
ruining the fair traders by “inundating the country with worthless 
goods at reduced prices, benefiting foreigners and bankrupting 
American merchants.” On the other hand, Representative Albert H. 
Tracy of Buffalo defended traders who sold at lower prices and 
advocated consumer freedom to buy from whatever source they 
desired. Representative Johnson of Virginia asserted that the meas- 
ure would ruin one part of the country for the benefit of another, 
and that free choice was still the best system of trade. Middle-of- 
the-roaders, such as the influential Representative Samuel Smith of 
Baltimore, advocated a very small duty of 1 to 2 percent. The auc- 
tion bill was closely fought. It was first rejected in the House by a 
vote of 77 to 72, and then was modified to a 5 percent tax on dry 
goods and 1 percent on minor items, and passed by an 89-to-61 
vote. After the defeat of the Baldwin Tariff Bill, however, the bill 
never came to a vote in the Senate. 

Failing to obtain legislative action, merchants of New York and 
other cities decided to combat the competition of auction sales of 
imported goods by banding together to refuse to buy goods at auc- 
tion. Thus, the United Dry Goods Association of New York, rep- 
resenting nearly all the wholesale and retail dry goods merchants of 
the city, met on May 21, 1821 and resolved not to purchase any dry 
goods at auction, in order to combat the “price fixing” of the “auc- 
tion monopoly.” 99 Protectionists had high hopes for this measure, 
and Niles hailed the action as a check on the British menace to 

98 Annals of Congress, 16th Congress, 1st Session, pp. 2174-75. Actually the 
10 percent tax was to apply only to important items such as woolens, cottons, 
etc. Minor items were to pay 1 to 2 percent. See Niles’ Weekly Register 18 (May 
5, 1820): 182f£ 

"New York Patron of Industry, June 6, 1821. 


The Panic of 1 81 9 

American employment and injury to the merchant and retailer. 1110 
Shortly thereafter, similar boycott action was taken by organizations 
of Philadelphia, Boston, and Baltimore merchants, in the dry goods 
and hardware fields. 101 The New York Association took the lead in 
appointing a Vigilance Committee to keep watch over the member- 
ship in carrying out the pledge. Not only did they agree not to buy 
at auction but they also agreed not to sell any goods at auction, 
except at sheriffs’ sales for bankruptcy. All these boycott efforts soon 
came to naught, and the report of the Vigilance Committee in Sep- 
tember of that year provides insight into the reasons for its complete 
failure and into the difficulties faced by any such “cartel” arrange- 
ment. 10- First, there was a lack of “complete uniformity of views 
upon the subject.” A few merchants, mainly small dealers, were 
opposed to the suppression of auction sales. Second, several large 
merchants, though opposed to auctions on principle, indulged in 
their self-interested advantage and continued to purchase — more 
cheaply — at auction. Third, New York, the auction center of the 
country, was filled with merchants from other cities who did not par- 
ticipate in the agreement and continued to buy at auction. And 
fourth, even the most “patriotic” (i.e., anti-auction) merchants were 
chafing at the restriction because, unfortunately, American importers 
did not import a sufficient variety of goods as demanded by con- 
sumers. Therefore, many merchants were “in a measure compelled” 
to buy at auction “for the sake of an assortment of goods” provided 
by auctions from foreign exporting houses. The Association, fol- 
lowed by the merchants of other cities, had to repeal its boycott. The 
repeal in New York carried by only two votes, 64 to 62. 

In addition to the failure to obtain federal legislation, a proposal 
to tax auctions in Maryland was rejected by only two votes, after a 
struggle in the Maryland House. 103 

W0 Ni/es’ Weekly Register 20 (July 21, 1821): 322. 

101 New York Patron of Industry, June 16, 17, 20, 1821. 

W2 Niles’ Weekly Register 21 (October 13, 1821): 103. The report was pre- 
sented on September 24 and signed by Stephen Lockwood, chairman. 

Maryland General Assembly, Votes and Proceedings of the House of Repre- 
sentatives, 1820-21. 

The Movement for a Protective Tariff 


Thus, the depression rejuvenated a protecdonist movement that 
had arisen after the war and become dominant. The postwar move- 
ment resulting in the Tariff of 1816, however, had been a general 
patriotic expression connected with the war and its aftermath, and 
meant to provide temporary relief to the industry spawned by war. 
Adherents comprised most Americans, including such later vigor- 
ous free traders as Thomas Jefferson and John Calhoun. With the 
passing of the war, the tariff issue had more or less disappeared. 
The character of the new depression-born movement would 
become more familiar to later generations. The movement was led 
by the new manufacturers, most of whom had begun during the war 
of 1812 when foreign trade was virtually suspended. Cotton textiles 
led the clamor for greater protection from imports, followed closely 
by woolen, iron, glass, and paper manufacturers. The battle over an 
increased tariff, which reached its peak in 1820 over the Baldwin 
Bill, was far more of a sectional controversy than the monetary 
issues. Protectionist sentiment flourished in the states where the 
manufactures were located — especially in the Middle Atlantic states, 
and adjacent states such as Ohio. The South, on the other hand, 
dependent on the export of its staples, almost solidly opposed the 
higher tariff, while the West and commercial New England split on 
the issue. 



Confronted with the nation’s first great panic, Americans 
searched widely for the causes of and remedies for their plight. 
Their search led them to a wide variety of suggestions and contro- 
versies, many of which showed keen insight and economic sophis- 
tication. Discussion was carried on in the newspapers, in mono- 
graphs, and in the halls of legislatures. Particularly striking is the 
high caliber economic thinking of the influential journalists of the 
day and of many leading political figures. The absence of special- 
ized economists was in a way compensated by the economic knowl- 
edge and intelligence of the articulate members of the community, 
including the leading statesmen. 

One of the chief centers of attention was the monetary system. 
The nation’s monetary system was highly imperfect; banking on a 
nationwide scale was new, and the nation suffered from inconvert- 
ibility and varying rates of depreciation during the War of 1812 and 
elimination and then renewal of a Bank of the United States. There 
had always been men who favored inconvertible paper for purposes 
of national development and men who opposed it, but lately little 
attention had been paid to such schemes. The panic caused mone- 
tary troubles to intensify and take on a new urgency. Groups of 
monetary expansionists arose, many of them respectable pillars of 
their communities, who wished to stop contraction of the money 
supply and expand the circulating medium instead. Various types of 
plans were developed and advanced, on both a federal and state 
level. Most discussion was on the state level, where all banks except 



The Panic of 1 81 9 

the Bank of the United States were chartered. The most moderate 
wished to bolster the failing banks by permitting them to suspend 
specie payment temporarily while continuing in operation. Others 
turned to the creation of wholly state owned banks or loan offices 
to issue inconvertible currency. Many states adopted measures to 
bolster or expand the money supply, including attempts to outlaw 
depreciation of bank notes. Four western states — Illinois, Missouri, 
Kentucky, and Tennessee — went to the length of establishing state 
owned inconvertible paper. The measures were only adopted after 
keen controversy. 

Many writers advocated more ambitious schemes of a federal 
inconvertible paper money. None came to a vote in Congress, but 
the House asked Secretary of Treasury Crawford to report on the 
desirability of such a plan. Crawford’s rather reluctant rejection 
buried the idea. His own paper scheme, though finally rejected by 
him, drew sharp comment, which incidentally provided some keen 
analysis of monetary problems and business fluctuations. 

The basic argument of the monetary expansionists was a need 
to relieve an alleged scarcity of money, thereby eliminating the 
depression by aiding debtors and raising prices. The more sophisti- 
cated inflationists added their contention that the rate of interest 
depended inversely on the quantity of money, and that expansion 
would therefore lead to a beneficial lowering of the rate of interest, 
and hence to restored prosperity. 

The “sound money” opponents of such schemes formed a 
majority of leading opinion. Their major argument was that depre- 
ciation would ensue from any inconvertible paper schemes. But in 
the process of forming their opposition, much higher level analysis 
was elaborated. Many hard money writers formulated a monetary 
explanation of the business cycle — seeing the cause of depression 
in an expansion of bank credit and money supply, a subsequent rise 
in prices, specie drain abroad, and finally contraction and depres- 
sion. Monetary expansion would only renew this process and pro- 
long the contraction necessary to liquidate unsound banks and 
reverse the specie drain. The only cure for the depression, they con- 
cluded, was a rigid enforcement of specie payment. Sound money 



writers conceded that monetary contraction would bring temporary 
disturbances, but declared that any legislative intervention would 
only aggravate the situation. 

Much of the discussion concerned the procedure to best main- 
tain confidence. The inflationists urged that new money would bolster 
confidence and induce money to leave idle hoards, thereby restor- 
ing prosperity. Their opponents, on the other hand, maintained that 
confidence could only be achieved by strict adherence to specie 

Believing that excessive bank credit was primarily responsible for 
the depression, restrictionists generally advocated various controls 
over credit as a method of relieving the present depression and pre- 
venting future ones. Various plans were offered (in addition to insis- 
tence on strict adherence to specie payments): for example, banks 
should be allowed only in cities; prohibition of small denomination 
notes; and the prohibition of interbank borrowing. Hostility to 
banks was widespread throughout the nation, and many influential 
figures went so far as to advocate abolition of banking, or virtual 
abolition through imposing 100 percent reserves. In practice, how- 
ever, they were often willing to accept more immediately attainable 
proposals for restricting bank credit. Leading Virginia statesmen 
were particularly prominent in the hard money ranks. 

Thus, America had quite a few exponents of the “Currency prin- 
ciple” — 100 percent reserve banking and the idea that fiduciary 
bank credit causes a business cycle — several years before Thomas 
Joplin first gave it prominence in England. Perhaps one reason for 
this precedence was that Americans, while benefiting from the 
famous English bullionist discussions on problems of an incon- 
vertible currency, were forced to grapple with inflation under a 
mostly convertible currency several years before the English — who 
did not complete their return to specie payments until 1821. 

Hostility was also engendered toward the Second Bank of the 
United States, which had touched off the monetary contraction at 
the onset of the panic. Legislatures passed resolutions urging the 
elimination of the bank, and some states levied taxes on it or sanc- 
tioned suspension of specie payment to the bank only. Little was 


The Panic of 1 81 9 

done in Congress to curb the bank, however. The depression inten- 
sified a longstanding political controversy concerning the power of 
the bank. It is often overlooked, however, that hostility to the bank 
on economic grounds came from two opposing directions: from 
those who attacked it as too restrictive, and from the hard money 
ultras who considered it a nationwide engine of monetary expan- 
sion. Such ultra hard money leaders as the Virginia group had little 
use for either state or federal banking. 

Much of the discussion between the hard and soft money forces 
was on a highly sophisticated level. Some inflationists welcomed the 
prospect of a limitless flood of money and even advocated depre- 
ciation as helping to build up a home market, but wiser ones coun- 
tered the opposition with the thesis that an inconvertible currency 
could be more stable in value than specie. Specie was subject to fluc- 
tuations of supply and demand, but paper could be regulated by the 
government so as to provide a stable value of the dollar. Hard 
money men were generally content to grant this in theory but to 
deny its practicality, asserting that the government would always 
tend to inflate the currency. Some added the subtle theoretical argu- 
ment that the value of money could not be measured, and denied 
that such stabilization was either possible or desirable. 

The twin planks of the relief platform in the states were incon- 
vertible state paper and debtors’ relief. Debtors’ relief took the 
form of stay laws and minimum appraisal laws. These measures had 
been used before in America, but not on such a widespread or 
intensified scale. In some cases they were adopted by themselves; in 
others they were used as means to bolster the circulation of the new 
inconvertible notes. Controversy over debtors’ relief proposals 
raged in states throughout the Union. Minimum appraisal laws were 
enacted in four western states — Indiana, Missouri, Ohio, and Ten- 
nessee — while stay laws were enacted in eight, two of them in the 
East (Maryland and Vermont). Some other eastern states (e.g., New 
York, Rhode Island, Pennsylvania) modified their procedures to 
ease the strain on insolvent debtors. 

The reasoning of the relief forces was generally simple and 
straightforward: the debtors were in a bad plight, and it was the duty 



of the legislature to come to their relief. Stress was often laid on the 
burden placed on debtors by the rise in the purchasing power of the 
dollar during the depression, with debtors being forced to repay in 
money of far greater value than they had borrowed. The opponents 
of relief could not deny the plight of the debtors. Their economic 
argument emphasized that alleviation of the debtors’ problems 
would only intensify the depression in the long run, for creditors 
would lose confidence, and this would aggravate the depression and 
delay recovery. The only lasting help for debtors was to let the 
economy take its course and await the resumption of confidence. 
Furthermore, the debtors would thereby be forced to hew to the 
virtues of thrift and hard work, the only long run basis for pros- 

One debt problem was a federal one: the public land debt, a 
mass of which was owed to the government. Granting more liberal 
terms of credit clearly constituted no interference with private con- 
tract. Congress moved to permit debtors to relinquish the unpaid 
portion of their land, to forgive much of the outstanding debt and 
keep tide to the rest, and to grant extended time for payment. The 
impetus for this relief came from the West, but it was generally sup- 
ported in all sections and passed overwhelmingly. Leading opposi- 
tion, in fact, came from westerners who wanted aid confined to the 
actual setders. President Monroe’s inaction in the face of the 
depression has been often stressed, but it should not be forgotten 
that he took the lead in sponsoring public land debt relief. Monroe 
did not overlook the depression in that case when he believed fed- 
eral action appropriate. 

The tariff question was another issue that sprang into prominence 
during the depression. After the War of 1812, the tariff of 1816 had 
been enacted with general approval in the national spirit carried over 
from wartime, and in the wish to aid the manufactures developed dur- 
ing the war. Since then, the tariff issue had been dormant, only to 
revive in the depression in its more modern form as an active, almost 
evangelical, movement. The movement centered in the Middle 
Atlantic states and was led by cotton and woolen manufacturers. A 
determined drive for a high tariff was narrowly defeated in the 


The Panic of 1 81 9 

Senate in 1 820, along with two subsidiary measures designed to ham- 
per imports: a prohibitory tax on auction sales — the major sales out- 
let for imported textiles — and a suspension of the federal govern- 
ment’s practice of granting time for the payment of import duties. 

The protectionists seized every opportunity to stress the sever- 
ity of the depression, to press their claim that the tariff would fur- 
nish a cure. Manufactures would be bolstered and agriculture 
assured a steady home market. The phenomenon of widespread 
unemployment was heavily stressed by the protectionists, and they 
asserted that a protective tariff would bring about full employment 
for labor. The existence of unemployment was particularly used to 
rebut standard free trade objections that a higher tariff would with- 
draw needed resources from agriculture and commerce. 

The free trade opposition centered in the South, where agricul- 
ture depended on exports, and in New England shipping centers. 
Free traders, when they answered the depression argument, main- 
tained that the tariff would aggravate the depression in commerce 
and agriculture by blocking foreign trade. Some sophisticated free 
traders also charged that a higher tariff would aggravate the depres- 
sion by imposing a tax burden on consumption, demonstrating also 
that falling prices had already increased the real burden of the tariff 
on the nation’s consumers. Thus, they arrived at the position that 
burdens on consumption should be abated during a depression. 

The depression gave rise to suggestions for internal improve- 
ments as a partial remedy, in arguments reminiscent of the public 
works proposals of a later day. These projects would alleviate the 
depression by giving work to the unemployed, invigorating enter- 
prise in the community, and quickening the circulation of money. 

Many citizens objected to all these legislative remedies on the 
grounds of laisse^jaire principle. Their arguments had two facets: (1) 
the government could not remedy the situation, and (2) a remedy 
could only come from the market processes themselves: via liquida- 
tion of unsound conditions and a return to the fundamental virtues 
of “industry and economy.” Even many of those with other pro- 
posals to offer felt that they must pay lip service to the pervasive 
belief in the importance of these twin virtues. Stress on the moral 



virtues often took the form of attack on luxurious consumption 
and other extravagances of the day. Embryonic Veblenians called 
upon the rich to set an example in thrifty living to the lower classes, 
who tended to imitate the former. 1 

The laissez-faire partisans opposed higher tariffs and debtors’ 
relief legislation. Most of them were hard money stalwarts as well. 
Controls over banks were not considered interference in the market 
but rather an exercise of the government’s sovereign rights over the 
money supply and a prevention of bank interference with the mar- 
ket. The most cogent upholders of this view were the leading Vir- 
ginians. Some ardent states-rights Virginians, in fact, were willing to 
grant federal control over banking. A few free traders, in contrast, 
favored an inflationist monetary policy. Some advocates of laissez- 
faire were uneasy about stringent regulation of banks, and a few 
evolved a rudimentary self-generating theory of business cycles, in 
which cycles were depicted as inevitably recurring business 
processes, always furnishing their own corrective countermove- 
ments. Protection and easy money, conversely, did not necessarily go 
hand in hand, as some leading protectionists remained staunch hard 
money men. 

The struggles over remedial proposals took their place in the 
context of nineteenth century struggles over monetary and debt 
relief proposals. Many historians orient their discussion of such 
struggles in America along class or sectional lines. The image is 
often conjured up of poor western farmer-debtors favoring infla- 
tion, battling rich eastern merchant-creditors favoring sound money. 
The results of this study cast strong doubt on this common ideal- 
type. 2 In the widespread monetary struggles during the depression 
of 1819—21, at least, the battle of inflation vs. hard money cut 

^ere free traders joined forces with protectionists, who constantly 
inveighed against the use of imported luxuries. 

2 Neither can this study endorse the opposite ideal-type of Bray Ham- 
mond, whose recent work tends to the contrary extreme of identifying agrar- 
ians with hard money, and merchants and businessmen with inflation. Ham- 
mond, Banks and Politics in America, passim. 


The Panic of 1 81 9 

sharply across regional, geographic, wealth, and occupational 
boundaries. The fact that two wealthy cotton planters from 
Nashville were the leaders of the opposing sides of the raging con- 
troversies typified the monetary and debtors’ relief debates. Fur- 
thermore, several western governors and inflationist leaders com- 
pletely changed their position after viewing the results of the incon- 
vertible paper schemes. These shifts could scarcely have occurred so 
swiftly if their opinions had been determined by their class, occu- 
pation, or region. Caution should be exercised in employing the 
much used term “agrarian,” for often an agrarian turns out to be a 
wealthy land speculator rather than an impoverished settler. Sec- 
tional and occupational differences were far more clear cut in the 
tariff controversy, however, with manufacturers in the Middle 
Atlantic states ranged against southern farmers and planters and 
New England merchants. 

The controversies inspired by the Panic of 1819 continued to 
make their imprint on later years in America. The protective move- 
ment, denied its victory at the time, triumphed in 1 824. Inflation of 
inconvertible notes by states was generally discredited as an anti- 
depression weapon by the rapid depreciation of the notes. Many of 
the anti-bank, ultra hard money leaders of the Jackson-Van Buren 
period first came to a hard money position during this depression. 
Andrew Jackson himself foreshadowed his later opposition to 
banking by making himself the fervent leader of the opposition to 
inconvertible paper in Tennessee. Thomas Hart (“Old Bullion”) 
Benton, later Jackson’s hard money arm in the Senate, was con- 
verted to hard money by his experience with banking in Missouri 
during the panic. Future President James K. Polk of Tennessee, who 
was to be Jackson’s leader in the House and later to establish the 
ultra hard money Independent Treasury system, began his political 
career in Tennessee in this period by urging return to specie pay- 
ment. Amos Kendall, later Jackson’s top adviser and confidant in the 
bank war, became an implacable enemy of banks during this period. 
Condy Raguet, though not a Jacksonian politically, did favor the 
Independent Treasury plan. He was converted to hard money dur- 
ing the Panic of 1819, after having been a leading inflationist since 



the end of the War. (The depression also converted Raguet from a 
protectionist to one of the leading champions of free trade.) 
Raguet’s depression-born search for stricter controls over bank 
credit expansion led him to be one of the leaders in the free bank- 
ing movement of the late 1820s. 

One of the most impressive aspects of the discussions about the 
depression was the high intellectual level of the debate, as carried 
on in newspapers and elsewhere. Participants showed familiarity 
with English and Continental economists, and with the English 
reviews, and attempted to relate their practical proposals to a frame- 
work of theory to a degree that seems remarkable today. 3 

There is a strong possibility that the panic gave a great impetus 
toward the launching of a class of economists in this country — in 
both the academic and journalistic fields. 4 The first treatise on eco- 
nomics published in this country was Daniel Raymond’s Thoughts on 
Political Economy in 1 820 (expanded into Elements of Political Economy 
in 1823). It was written very much under the impact of the mone- 
tary and tariff controversies of the depression, in which Raymond 
was embroiled. John McVickar, the nation’s first academic econo- 
mist, began teaching economics at Columbia College around this 
period, and later in the 1820s evolved the “free banking” plan, with 
bank notes to be secured by government bonds and land mortgages. 
In fact, many began teaching and writing economics during the 1820s, 
such as Thomas Cooper, Henry Vethake, William Beach Lawrence, 
Willard Phillips, Alexander Everett, George Tucker, William Jenni- 
son, Jacob N. Cardozo, the Reverend Samuel P. Newman, the 
Reverend Francis Wayland. Certainly much of this flowering of 

’On the great extent to which English and French economists were 
reprinted, translated, and sold in America during this period, see Esther 
Lowenthal, “American Reprints of Economic Writings, 1776—1848,” American 
Economic R evieu> 42 (December 1952): 876-80, and “Additional American 
Reprints, 1776-1848,” ibid., 43 (December 1953): 884-85; and David McCord 
Wright, The Economic Eibrary of the President of the Bank of the United States, 
1819—23 (Charlottesville: University of Virginia Press, 1950). 

4 See Michael J.L. O’Connor, Origins of Academic Economics in the United States 
(New York: Columbia University Press, 1944), pp. 29, 73, 102. 


The Panic of 1 81 9 

economics in the United States can be attributed to the impetus 
given to economic thought by Ricardo, Say, and other European 
economists. Part of the credit, however, may well be assigned to the 
controversies over economic policy that the Panic of 1819 had 
brought into sharp focus. 

The Panic of 1819 exerted a profound effect on American eco- 
nomic thought. As the first great financial depression, similar to a 
modern expansion-depression pattern, the panic heightened inter- 
est in economic problems, and particularly those problems related 
to the causes and cures of depressed conditions. Such important 
unsolved economic problems as monetary and banking policy, tar- 
iff protection, debt collection, internal improvements, all existed 
before the depression and all continued after it was gone. But the 
panic gave them new dimensions and aroused new speculations 
which were not to disappear with the return of prosperity. 


Minor Remedies Proposed 

Aside from major controversies already discussed, other scat- 
tered proposals and discussions appeared during the depression. 
Internal improvements financed by the states, for example, were 
suggested in many quarters as remedial measures for the depression, 
thus anticipating modern public works proposals. These sugges- 
tions were reflections of the growing interest in internal improve- 
ments since the end of the War of 1812. An internal improvement 
drive was particularly strong in Pennsylvania, an early leader in 
improvement sentiment. 1 Philadelphia’s Representative William 
Lehman, head of the Committee on Public Roads of the Pennsyl- 
vania House, sponsored a bill, early in 1820, for the appropriation 
of over $660 thousand on thirty projects throughout the state. One 
million dollars was envisioned as the final goal of the plan. 2 Lehman 
avowed that the measure was necessary for the immediate relief of 
the portion of people without employment. The bill, he said, was as 
much to relieve the unemployed as it was to lessen the cost of trans- 
port. Passage of the bill would relieve many citizens by giving them 
employment and would also call a large sum of money into “active 
circulation.” A supporter, Philadelphia’s Representative Josiah Ran- 
dall, stressed the widespread depression and unemployment and 

Hee O’Connor, Origins of Academic Economics, pp. 29, 73, 102. 

^Philadelphia Union, March 14, 1820. Also see Lehman’s Committee 
Report, ibid., March 10, 1820, and the debate, ibid., March 21, 1820. 



The Panic of 1 81 9 

claimed as one of the bill’s most important effects “the relief it will 
give to the laboring classes of the community.” 

In the course of his remarks, Lehman used currendy familiar 
arguments in justifying the increased public debt his policy would 
entail. For how could the whole society be at a loss, when the debt 
“would still circulate among the members of the same body?” 

Stormy Representative William Duane, in his report on the 
depression, offered internal improvements as his only suggestion on 
the state level for relieving the depression. The expenditures would 
pay labor and go into active circulation. He also suggested that the 
low prices of labor offered the government a good opportunity to 
launch construction projects. 

The only vocal opponent of the bill was Representative Jarrett, 
who asked why the Philadelphians who wanted the bill and were so 
eager for internal improvements did not invest their own ample cap- 
ital in private improvement projects? 3 

Pennsylvania’s Governor Joseph Hiester, opposed, as was 
Duane, to inconvertible paper money, suggested public improve- 
ments as a remedy to the “stagnation of trade and business,” and, 
in his message at the end of 1821, attributed part of the recovery to 
employment furnished by the public improvements that the state 
had recently carried out. 4 * George Mifflin, a leading Pennsylvania 
politician, wrote that internal improvement was the only lever that 
could lift the state to recovery. 3 

The New Jersey legislature adopted, in January, 1820, a resolu- 
tion favoring the construction of a Delaware and Raritan Canal. 
The sponsors, supported by the Times (New Brunswick), urged that 
dormant capital would be put to work, and agricultural depression 
as well as unemployment would be relieved. The project never 
began because of insufficient subscription of funds. 6 

3 See “Appias,” in the Philadelphia Union, December 15, 1820. 

Pennsylvania Legislature, Journal of the House, 1821 (December 5,1821). 

Philadelphia Union, August 24, 1821. 

6 H. Jerome Cranmer, The Neu> Jersej Canals: State Polig and Private Enterprise, 
1820—32 (New York, Columbia University, microfilmed, 1955), pp. 32-38. 

Appendix A: Minor Remedies Proposed 


A leading proponent of public works as a remedy for the depres- 
sion was the prominent North Carolinian, Archibald D. Murphey. 
Murphey asserted that the cause of the depression was the lack of 
a home market for American agriculture. The remedy, then, was to 
build up the home market, particularly the soil and commercial facil- 
ities. To this end, Murphey proposed an extensive plan of internal 
improvements, including the building of canals, the deepening of 
rivers, and the construction of highways. Murphey, also an infla- 
tionist, favored keeping the state’s money at home. He urged using 
the new paper money to build public works projects. 7 

Much western sentiment was reflected in a resolution introduced 
in the Ohio Senate by General William Henry Harrison, the future 
President — a foe of banks and a proponent of tariffs. Harrison 
argued that it was unwise to pay off the public debt too rapidly. Any 
surplus revenue that might accumulate, he urged, should be used to 
aid roads, canals, and other internal improvements. 8 And in eastern 
Tennessee, the anti-relief Patriot urged governmental clearing of 
eastern Tennessee rivers, in lieu of debtors’ relief, to permit the 
shipment of surplus produce to market. 9 

There was also considerable discussion over the various state 
usury laws, which generally restricted interest to a 6 percent maxi- 
mum. Some advocated further tightening and stricter enforcement 
of the usury laws as a means of relieving debtors. In 1820, New Jer- 
sey tightened its usury laws. 10 In the following session, citizens of 
populous Essex County, following the lead of Salem County, peti- 
tioned for a reduction in the legal maximum interest, but this was 
rejected by the Assembly’s Committee of Finance (Pennington) on 
the grounds that such a reduction would operate against debtors by 
inducing creditors to call their loans. 11 

7 Murphey, Papers, vol. 2, pp. 107, 216—17. 

8 Boston New England Palladium, January 7, 1820. On Missouri moves for 
internal improvements, see Anderson, “Frontier Economic Problems, II,” p. 190. 

9 Parks, Felix Grundy, p. 137. 

10 New Jersey Legislature, Votes and Proceedings of the General Assembly, 1820 
(January 24, 1820), p. 132. 

^Ibid., (November 10, 1820), pp. 67-68. 


The Panic of 1 81 9 

Tennessee also tightened its usury law in 1819 by setting a legal 
maximum of 6 percent. A lone figure in the Tennessee House, J. C. 
Mitchell of Rhea County, urged defeat of the bill and the repeal of 
all laws on usury. Mitchell argued that a creditor had as much right 
to get the best price for his money as a farmer to get the best price 
for his horse. Tennessee’s relief leader, Representative Felix Grundy, 
countered with the argument that property value was determined by 
use, whereas the value of money was the same everywhere, thus 
presumably harking back to the Aristotelian concept of the barren- 
ness of money as an argument against interest. Grundy concluded 
that if no limit were placed on interest, the lenders would grow rich 
at the expense of the borrowers. 12 

Advocates of repeal or of great easing of the usury laws appeared 
in other states. One Kentuckian, for example, urged that the only way 
to relieve the depressed conditions would be to let interest rates rise to 
10 percent. 1 ' 1 Such a high interest rate, he argued, would bring money 
in from outside Kentucky, and spur out-state investment in Kentucky 
bank stock. There was no sanctity, after all, about the number “six” as 
a legal maximum. “Mercator” pointed out in the Richmond Enquirer 
that usury laws restricted credit rather than promoted it. 14 When the 
market rate of interest rose above the legal maximum, many creditors 
felt bound to obey the law and were therefore deterred from lending, 
while the other lenders had to be indemnified for the extra risk of 
evading the law. “A Citizen” reasoned that the very fact of credit- 
exchange signified that the borrower as well as the creditor believed 
that he benefited from the transaction. 15 The “Citizen” sprinkled his 
discussion liberally with quotations from Jeremy Bentham’s Defense of 
Usury. He attributed the attack on creditors to envy of those who pre- 
ferred future goods by those who more strongly preferred the present. 

12 Parks, Felix Grundy, pp. 111-12. 

12 “Polonius,” in the Kentucky Commentator, reprinted in the Boston New 
England Valladium, January 15, 1819. 

14 “Mercator,” in Richmond Enquirer, January 14, 1819. 

15 “A Citizen,” in Philadelphia Union, January 14, 1819. 

Appendix A: Minor Remedies Proposed 


Generally, states did little about the problem. An example was 
Virginia, when in 1818-19 two opposing bills were introduced: one 
to strengthen usury laws and another to repeal them. Both attempts 
were defeated in the House by three-to-one margins. The Vermont 
legislature received numerous petitions for a usury law, but two 
House committees rejected them in the fall of 1821. 16 

Inevitably, poor relief increased during the depression. Governor 
Thomas Worthington of Ohio responded by urging the expansion 
of poor houses in the state. 17 On the other hand, some opinion 
urged that the debilitating poor laws be eliminated. Governor De 
Witt Clinton of New York, in his 1818 message, advocated repeal of 
the poor laws, because they subsidized pauperism. It was necessary, 
he maintained, to make living by charity a greater evil than living by 
industry. The pro-Tammany New York American agreed, quoting 
Jacob N. Cardozo’s (Charleston) Southern Patriot with approval for 
criticizing the poor laws as placing a premium upon idleness. 18 

John Woodward, in his famous Tammany Address, had two minor 
remedies to offer for the depression: first, that money brokers be 
licensed and drastically limited in number, and that they be prohib- 
ited from making loans or functioning outside large cities. 1 9 This was 
a reflection of popular and bank attacks on brokers for allegedly 
depreciating the value of bank notes. Second, he deplored the exces- 
sively high prices of hotels, inns, and the like, and advocated maxi- 
mum price controls on the rates of inns and hotels. This would spur 
business by lessening the cost of travel. 

There were some who adopted the protectionist theory of the 
cause of the depression without adopting the remedy. Thus, one 
writer believed that domestic industry should be built up and fewer 

16 Vermont General Assembly, Journal of the House, 1820—21 (November 2, 
1820): 147ff, and (November 9, 1820): 187ff. 

17 Frank T. Cole, “Thomas Worthington,” Ohio Archaeological and Historical 
Publications 12 (1903): 366. 

18 New York American, October 2, 1819. On the other hand, the American 
endorsed emergency food relief for paupers, ibid., October 13, 1819. 

19 Woodward, Tammany Address, pp. 9-10. 


The Panic of 1 81 9 

manufactured goods imported from abroad; but instead of protec- 
tion, he advocated a return to family manufactures. In Delaware, in 
fact, there was a fleeting movement for subsidization of household 
manufactures. Small premiums for household manufacture in fields 
where prices were depressed were recommended by Governor 
Jacob Stout, but rejected by a House committee. 20 

Another reaction to the depression, if not precisely a remedy 
suggested for it, was agitation for government to reduce tolls on its 
toll bridges and turnpikes. Thus, in Virginia, the citizens of Freder- 
ick and Shenandoah Counties asked for reduction of their bridge 
tolls in view of the depression and the great reduction in the prices 
of produce. The proposal was accepted by the Virginia legislature. 21 

During the depression, savings banks were begun in many com- 
munities as a method of helping the poor by making saving easier as 
well as relieving the community to that extent of the burden of poor 
relief. Savings banks had only first begun in America at Philadelphia 
in December, 1816. Four arose in Connecticut during the depression. 
In Boston, a unique variant of a savings bank was born in the depres- 
sion. It was the Boston Fuel Savings Institution, organized to help the 
poor save money in the summer so that they could buy their own fuel 
in the winter. For their small deposits of money, they received non- 
negotiable certificates, to be redeemed in the winter in wood, that the 
institution bought in the summer and stored for the cold weather. 22 

One of the most distinctive proposed remedies for the depres- 
sion was offered by “George Le Fiscal,” in the New York National 
Advocate. He suggested that local communities aid businessmen and 
workers by making careful estimates of the state of demand of each 
trade, and in each community keep detailed accounts on which 
occupations and trades were under, and which were oversupplied. 23 

20 “Amicus Patriae Suae,” in Philadelphia Union, December 4, 1820; 
Delaware General Assembly, Journal of the House of Representatives, 1821 (Janu- 
ary 3, 1821): 16-24, and (January 12, 1821): 67. 

21 Virginia General Assembly, Journal of the House of Delegates, 1820—21 
(December 14, 1820): 41. 

22 “Boston,” The Christian Disciple and Theological Review (1822): 157. 
23 Reprinted in the Boston New England Palladium, September 1, 1820. 

Appendix A: Minor Remedies Proposed 


In those pockets of skilled urban crafts where at least informal 
unions had developed, some difficulties arose regarding falling wage 
rates. Thus, an attempt to lower wage rates brought on a strike of 
Philadelphia carpenters in 1821. 24 Perhaps most tightly organized of 
workers were the journeymen cordwainers of Philadelphia, who 
succeeded in compelling their employers to raise their wages in the 
latter part of 1 820, a fact perhaps not entirely unrelated to the heavy 
unemployment of cordwainers during the same period. The master 
shoemakers retaliated by continuing to try to push cordwainer 
wages back to the previous level, an action which the journeymen 
unsuccessfully tried to prevent by judicial process. 25 In New York 
City, in 1819, the masons combined to try to prevent a reduction of 
their daily wage rates, and this action suspended construction activ- 
ity in New York for a short time. John Pintard, one of New York 
City’s leading merchants and founder of the New York Historical 
Society, wrote at the time: “We have been retarded in consequence 
of a conspiracy on the part of the masons, against reducing their 
wages one shilling from 16/ to 15/ per day, the former being the 
war price. All industry has been suspended for a fortnight in expec- 
tation of compelling builders to yield. But a steady perseverance on 
the part of the latter against shameful imposition has brought their 
appetite to, and work is once more resumed. . . . These combina- 
tions are very unjustifiable.” 26 

24 William A. Sullivan, “A Decade of Labor Strife,” Pennsylvania Histoiy 18 
(January 1950): 24. 

25 Sullivan, Industrial Worker, pp. 79f£, 128ff. 

26 Pintard, Letters (June 2, 1819), p. 197. A cartel of domestic salt manufac- 
tures in Kanawha County (West Virginia) also failed to maintain a high price of 
salt ($2 a bushel) during the depression. The pressure of deflation and heavy 
imports of cheap salt plummeted the price down to sixty cents in 1821. 


Chronology of 
Relief Legislation 

Stay laws imposed moratoria on collections of debts; minimum 
appraisal laws set a fixed price below which the debtor’s property 
could not be sold at auction; compulsory par laws prohibited any- 
one from exchanging bank notes of the state at a discount; the 
“summary process” was a particularly rapid procedure for collection 
of debts to banks. 


October Vermont: House passed stay bill. 

Rhode Island: repeal of “summary process” on debts 
to banks. 

December Pennsylvania: stay and minimum appraisal bills 








Delaware: stay and minimum appraisal bills defeated 
in House of Representatives. 

Ohio: State Bank proposed. 

Maryland: compulsory par law enacted. 

Ohio: compulsory par law enacted. 

New York: stay and minimum appraisal bills defeated 
in Senate. 

Tennessee: stay law passed. 

Vermont: House passed stay bill. 

Kentucky: stay law passed. 



The Panic of 1 81 9 










Maryland: stay law passed. 

Indiana: minimum appraisal law passed. 

North Carolina: stay and minimum appraisal bills 

Ohio: compulsory par law repealed. 

Kentucky: stay law passed. 

Delaware: compulsory par law enacted. 

Virginia: minimum appraisal bill defeated in House of 

Pennsylvania: easing of execution law. Loan office bill 
defeated in House of Representatives. 

New Jersey: stay bill and loans to debtors defeated in 
General Assembly. 

Tennessee: stay law passed. Bank of State of Tennessee 

Massachusetts: compulsory par bill proposed. 

Vermont: stay bill defeated in House. 

Kentucky: Bank of Commonwealth enacted. 

Kentucky: stay law passed. 









Illinois: stay law passed. 

Virginia: stay bill defeated in House of Delegates. 
Illinois: State Bank enacted. 

Maryland: loan office proposal defeated in House of 

New York: easing of execution law. 

Pennsylvania: minimum appraisal-stay law passed. 
Missouri: stay law passed. 

Georgia: specie payments suspended to Bank of United 

Louisiana: stay law passed. 

Tennessee: minimum appraisal bill defeated in Senate. 
Kentucky: minimum appraisal law passed. 

Appendix B: Chronology of Relief L egislation 



April Vermont: stay law passed. 

December Missouri: stay and minimum appraisal laws, and loan 
office, repealed. 

1823 Kentucky: stay laws modified. 

Maryland: compulsory par law repealed. 

1824 Indiana: minimum appraisal law repealed. 

Kentucky: stay law repealed. 

Illinois: State Bank repealed. 

Georgia: resumption of specie payments. 

1826 Tennessee: resumption of specie payments. 



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Abbott, Edith, 21 4n 
Abbott, James, 201n 
Abernethy, Thomas Perkins, 12n, 47n, 
68n, 81n, 82n, 84n, 122n 
Adair, John, 77, 102, 138-40, 141, 144 
Adams, George, 132 
Adams, John, 198, 198n, 210 
Adams, John Quincy, 120n, 152, 198, 
198n, 200n, 207 
‘ Agricola,” 150, 159 
Agricultural production, 27 
Alabama, 81-84 

Alabama, Bank of the State of, 83 
Albion, Robert G., 8n 
Alexander, William M., 112 
Allen, Charles H., 107 
Allen, David, 191 
Allen, Robert, 43^-4 
Allen, Tandy, 141 
Ambler, Charles H., 5n, 180n 
American Society for the Encourage- 
ment of American Manufactures, 

Anderson, Elattie M., 13n, 25n, 61n, 
62n, 65n, 66n, 115n, 117n, 121n, 
199n, 21 9n, 253n 
Anderson, Richard C., 44n 

Anderson, Samuel, 73 
Andrews, Matthew P., 50 
“Anti-B ullionist,” 150-51, 150n, 171, 

Astor and Son, 14 
Auction sales, 7, 235—36 

proposed tax on, 236-38, 246 
Austrian theory of the crisis. See 
Crisis, “Austrian” theory of 

Baldwin, Eienry, 216—17 
Baldwin Bill, 222—25 
on tariffs, 217n 
Ball, John S., 67 
Bank credit 

restriction of, 179-208, 243 
Bank of Darien, 86—88, 180 
Bank of the United States, First, 2, 3 
Bank of the United States, Second, 
10,16, 25, 53, 79, 87, 91n, 94, 
106-08, 150, 153, 157, 165, 182-83, 
199, 204-05, 208, 233n, 241, 243 
Bank of Vincennes, 108 
Banking, investment, 14 
Bankruptcies, 19, 22—23, 71, 75 



The Panic of 1 81 9 

Banks, establishment of new, 5, 9 
Barker, Jacob, 192, 192n 
Barrow, Willie, 123 
Barter, 22 

Bassett, Burwell, 205 
Bassett, T.D. Seymour, 99n 
Bates, Martin W, 185 
Baylor, Orval W, 76n, 124n, 203n 
Beard, William E., 68n, 122n 
Beecher, Lyman, 215, 215n 
Bentham, Jeremy, 254 
Benton, Thomas Hart, 117, 248 
Berry, Thomas S., 14n, 20n 
Bezanson, Anne, 5n, 6n, 7, 7n, 15, 
15n, 21n 

Bibb, George M., 120n, 132, 132n, 

Bibb, Thomas, 58, 83n 
Bining, Arthur C., 217n 
Bining, William, 217n 
Bishop, J. Leander, 7n, 8n, 19n, 23n, 
25n, 210n, 21 7n, 234n, 236n 
Blake, Thomas H., 110 
Bledsoe, Jesse, 202, 202n 
Bond, Shadrach, 113, 113n 
Booms, 11 

Bradford, Thomas G., 69n 
Branch, John, 55 
Brents, Samuel, 140 
Brigham, Clarence S., 52n, 197n 
Brinckle, Henry, 48, 185, 185n 
Brougham, Lord, 209n 
Brown, Alexander, and Sons, 14 
Brown, Ethan Allen, 22, 106—07, 
106n, 199 

Bruce, Kathleen, 29n 
Bryan, Henry H., 124 
Buck, Norman S., 8n 
Buley, R. Carlyle, 107n, llOn, 112n 

Bunch, Samuel, 127 
Burns, Arthur Frank, 27n, 29n 
Burrill, James J., Jr., 225 
Business cycles, modern, 26—29 

Cable, J. Ray, 22n, 1 1 5n 
Cairnes, Abraham, 112 
Caldwell, Stephen A., 85n 
Calhoun, John C., 65n, 152, 239 
Cambreleng, Churchill C., 32n, 206, 
206n, 231, 231n, 234n, 235 
Campbell, Claude A., 68n, 122n 
Canadian notes, 1 97 
Cardozo, Jacob Nunez, 90, 90n, 249, 

Carey, Matthew, 211—14, 211n, 212n, 
213n, 21 4n, 221,223, 232 
Carroll, William, 74-75, 130, 130n, 153 
Catterall, Ralph C.H., lln, 18n 
Cheves, Langdon, 12, 132n, 162 
Child, Josiah, 155n 
Chouteau, Pierre, 67 
Clark, Allen C., 152n 
Clark, John, 88 

Clark, Victor S., 7n, 20n, 210n 
Clarke, John, 220n 
Clay, Henry, 44n, 21 9 
Clinton, DeWitt, 190-91, 207, 

221-22, 255 
Cochran, John T., 48 
“Colbert,” 94, 94n, 181n, 187n 
Cole, Arthur H., 5n, 6n, 7n, 8n, 12n, 
15, 15n, 19, 19n, 20n, 21n, 23n, 28n 
Cole, Frank T., 255n 
Coleman, William, 133, 133n 
Compensated dollar, 167-68 
Confidence, 56-58, 72, 101, 104, 
134-35, 174-75, 243, 245 
Conger, John L., 13n 



Connelley, William E., 1 3n, 20n, 7 6n, 
136n, 143n, 144n, 145n, 203n, 204n 
Construction, urban, 27, 257 

Bank of the United States, 17ff 
credit, 18 

Convention of the Friends of 
National Industry, 211, 233, 236 
Cooper, Thomas, 249 
Coulter, E. Merton, 13n, 20n, 76n, 
136n, 143n, 144n, 145n, 203n, 204n 
Cranmer, H. Jerome, 251n 
Crawford, William H., 5n, 16n, 39, 87, 
133n, 152, 162-68, 163n, 172, 172n, 
179, 179n, 198, 242 

“Austrian” theory of, 176 
underconsumptionist theory of, 

Crittenden, John J., 140, 140n, 142-43 

Crockett, Davy, 202 

Crockett, Walter Hill, 51 n 

Crolius, Clarkson, 188 

Crowell, John, 43 

Currency, uniform, 4, 12 

Cushing, Thomas, 1 3n 

Dain, Floyd Russell, 115, 201 n 
Damil, Richard, 110 
David, Sampson, 126 
Davidson, Alexander, 61n, 115n 
Davis, Harold E., 23n, 59n 
Day, Clive, 3n, 8n 

Debtors’ relief, public land, 37-47, 245 
DeGrand, Peter Paul, 198, 198n 
Delaware, 47-48 

monetary expansion, 97 
protective tariff, 219 
restricting bank credit, 185 

Delaware, Farmers’ Bank of, 97 
Depreciation, 175 

Dewey, Davis R., 4n, 5n, lOn, 16n, 95n 
Dickerson, Mahlon, 224 
District of Columbia, 188 
Dollar, devaluation, 173 
Dorfman, Joseph, 89n, 90n, 160n, 
187n, 21 7n, 228n, 229n, 231n 
Dorsey, Dorothy B., 13n, 22n, 61 n, 
62n, 115n, 116n 

Dowrie, George W, 60n, 61n, llln, 
113n, 114n 

Duane, William, 56, 56n, 102, 102n, 
152n, 162, 162n, 165, 195, 218, 
218n, 252 

Duke, Basil W, 76n, 131n, 145n 
Dunn, Jacob Piatt, 59n, 108n, 11 On 
DuPonceau, Peter S., 213, 214n 
DuPont, E.I., 220, 220n 
Durrett, Reuben T., 145n 

Eaton, John Henry, 42, 42n 
Economics, as a profession, 249—50 
Economy, 30, 32-34, 53, 55n, 246 
Edwards, Ninian, 41, 41 n, 42n, 65n 
Eiselen, Malcolm R., 20n, 217n, 226n 
Elliott, Stephen, 89, 89n, 229, 229n 
Embargo Act, 2 
Emerick, C.F., 12n 
Ervin, Andrew, 69n 
Esarey, Logan, 23n, 107n, 108n, 109n, 
11 On, 198n 

Evans, George Heberton, 3n, 8n 
Everett, Alexander, 249 
Exports, 1, 8-9, 15, 19-20, 97 

“Farmer of Prince Georges County, 
A,” 95-96 


The Panic of 1 81 9 

Ferguson, Russell J., 216n 
Few, William, 211, 21 In, 234n 
Findlay, William, 56, 56n, 102, 102n, 

Flint, James, 17n, 24n 

Florinsky, Michael T., 154n 

Folz, William E., vi, 1 1 n, 1 9n, 25n, 68n 

Force, Peter, 32n 

Forsyth, John, 172 

Frankfort Resolutions, 132—36 

Free banking, 249 

“Friends of Natural Rights, The,” 

232, 232n 

Galbreath, Charles, 200n 
Gallatin, Albert, 4n, 5n, 1 8n, 1 52 
Galusha, Jonas, 100 
Garnett, Charles H., 13n, 60n, 11 In, 

1 Mil 

Garnett, James M., 227n 
Georgia, 180-81 

Georgia, Bank of the State of, 87 
Gold and silver, revaluation, 172-73 
Golden, Gabriel H., 75n, 131n 
Goss, Charles F., 22n, 59n, 106n 
Gouge, William M., 5n, 9n, lln, 12n 
Govan, Thomas Payne, 86n, 87n 
Gras, Norman Scott Brien, 12n, 18n 
Green, Duff, 65, 65n, 66n, 119 
Greene, William, 22, 23n, 59n, 106n 
Greer, Thomas H., vi, 22n, 47n, 58n 
Griffith, Elmer C., 131n 
Gronert, Theodore G, 19n, 25n, 21 9n 
Gruchy, Allan G, 4n 
Grundy, Felix, 68—69, 69n, 70n, 123, 

Gwynn, William, 1 86 

“H.B.”, 221, 221 n, 236n 
Hamer, Philip, 68n, 69n, 70n, 75n, 
122n, 123n, 125n, 129n, 130n 
Hamilton, Alexander, 133n, 187 
Hamilton, WJ., 65n, 66n, 67n, 116n, 
118n, 120n 

Hammond, Bray, 204n, 247n 
Hammond, Charles, 199, 200n 
Hardin, Benjamin, 44, 46 
Hardin, Martin D., 132, 132n 
Harlan, Louis R., 19n 
Harrison, William Henry, 40n, 110, 
199,219, 253 

Hayek, Friedrich August, 176 
Hayne, Robert Y., 89, 89n 
Heath, Milton S., 86n, 87n, 88n, 180n 
Hedges, Joseph E., 14n 
Hendricks, William, 109, 109n 
Hendrickson, Isaac, 48 
Hepburn, A. Barton, 173n 
Hiester, Joseph, 25n, 34n, 252 
“Homo.” See Law, Thomas, 96 
Hopkinson, Joseph, 49, 49n, 56, 

“Howard,” 33 

see also Noah, Mordecai Manuel 
“Howard the Younger,” 33 
Howard, Thomas C., 203 
Hume, David, 187n 
Huntington, Charles C., 58n, 106n, 

Huntsman, Adam, 127 
Huntsville Bank, 82—84 

Illinois, 60-61 

Illinois, State Bank of, 111, 113 
Import duties, credits on, 233—34 
Imports, 5-6, 14, 20-21 



Indiana, 59, 107-08, 198 
Indiana, State Bank of, 59 
Industry, 32 

Inflation. See Prices; Monetary expan- 

Interest, “real” theory of, 166—67 
Internal improvements, 104n, 156, 
246, 251-53 
Investment, 12 

Jackson, Andrew, 33n, 38n, 42n, 69n, 
74, 109, 109n, 127-29, 128n, 133n, 

Jackson, Samuel, 213, 213n 
Jarrett, Henry, 103, 252 
Jefferson, Thomas, 34n, 181, 182n, 
184, 184n, 198, 207,210,239 
Jennings, Jonathan, 109, 109n 
Jennison, William, 249 
Jervey, Theodore D., 89n 
Johnson, Emory R., 8n 
Johnson, Joseph, 32, 205, 237 
Johnson, Richard M., 38, 38n, 41, 42n 
Jones, William, 17 
Joplin, Thomas, 243 

Kehl, James A., 22n, 57n, 21 7n 
Kendall, Amos, 79, 79n, 80n, 202-03, 
202n, 248 

Kennedy, George H., 119 
Kennedy, James, 119 
Kent, Joseph, 205-06, 206n 
Kentucky, Bank of, 79—77, 131, 131n, 
138, 141 

Kentucky, Bank of the Common- 
wealth of, 77-78, 137, 141 

debtors’ relief, 68 

monetary expansion, 131 
restricting bank credit, 202—04 
stay laws, 76-77 
tariff, 219, 220 
Ker, David C., 173 
Kitchell, Wicldiff, 61, 112 
Klebaner, Benjamin I., 24n 
Klein, PhiUp S., 102n 
Knox, John Jay, 5n, 12n, 16n, 60n, 
83n, 88n, 93n, 94n, 95n, 115n 

lutisse^Jaire, 246-47 
Land sales, pubUc. See Pubkc land 

Lauderdale, Lord, 232n 
Law, Edward, 152 
Law, Thomas, 96, 152-58 
Lawrence, WiUiam Beach, 249 
Lee, Alfred, 22n 
Legal tender laws, 84 
Lehman, WiUiam, 251—52, 251n 
Lewis, William Berkeley, 129 
Livingood, James W., 20n 
Loan offices, 102—05, 117—20 
Logan, John, 203 
Louisiana, 68 
Louisiana debt, 1 7 
Louisiana Purchase, 17 
Louisiana State Bank, 85 
LoveU, Joseph, 54n 
LoweU, F.C., 210 
Lowenthal, Esther, 249n 
Lowndes, WiUiam, 230n 
Lyon, Matthew, 225 

McCUntoc, Samuel, 112 
McClurg, Alexander, 21 7 


The Panic of 1 81 9 

McCoy, William, 44 
McKim, Isaac, 234 
McLean, John, 113 
McMinn, Joseph, 72— 7 4, 72n 
McNair, Alexander, 63—64, 117, 118 
McVickar, John, 249 
Madeleine, Sister M. Grace, 19n, 47n 
Madison, James, 168, 168n, 189, 189n, 
210, 227n 

“Manufacturer, A,” 215—16 
Manufacturing, 2, 28 
Marshall, John, 182, 188 
Martin, James S., 188 

auction tax, 238 
monetary expansion, 94 
restriction of bank credit, 1 86—88 
stay laws, 50-51 
tariff, 220-21 
Massachusetts, 50 

“Mercantile Correspondent, A,” 149 
“Merchant, A,” 193 
Metcalf, Thomas, 44n, 44 
Michigan Territory, 115 
Mifflin, George, 252 
Miller, Harry E., 1 6n 
Miller, Pleasant M., 126, 201 
Miller, Thomas, 52-53, 94 
Minimum appraisal laws, 47—80, 244, 

Mises, Ludwig von, 176 
Mississippi, 84-85 
Mississippi, Bank of, 84—85 
Mississippi Bubble, 41, 128 
Missouri, Bank of, 116 

debtors’ relief, 61-64 
monetary expansion, 1 1 5—1 6 
protective tariff, 219 
restricting bank credit, 199 

Mitchell, J.C., 201, 254 
Mitchell, Waldo E, 13n, 59n, 60n, 
107n, 11 On 

Mitchell, Wesley Clair, 26, 26n, 27n, 
28n, 29n 

Monetary expansion, 9 
national, 149-77 
state, 81-147, 242, 244 
Money brokers, 91-93, 95, 146 
Money, velocity of, 101—02, 105—06, 

Monroe, James, 30, 30n, 38, 39, 162n, 
226, 245 

Moore, Albert B., 83n 
Moore, Frederick W, 20n 
Mulroy, Samuel, 110 
Murphey, Archibald D., 90—91, 9 In, 
253, 253n 

National Bureau of Economic 
Research, 29 
New Hampshire, 1 97 
New Jersey, 48-49, 98, 252 
Newman, Samuel P., 249 
New York 

auction tax, 237-38 
monetary expansion, 99 
protective tariff, 221—22 
restricting bank credit, 188—93 
stay laws, 50 

New York Stock Exchange, 14 
Niles, Hezekiah, 46, 75n, 96, 135, 

145, 162, 169, 186, 186n, 204, 21 3n, 
220, 223, 232, 237 
Noah, Mordecai Manuel, 32-33, 38, 

Noble, James, 109, 109n 
Noble, John, 42n, 56, 56n 



Non-Intercourse Acts, 2 
North Carolina, State Bank of, 90 
North Carolina 

monetary expansion, 90—91 
protective tariff, 220n 
stay laws, 55 

O’Connor, Michael J.L., 249n 
Ogden, James DePeyster, 234n 

debtors’ relief, 58 
monetary expansion, 106—07 
protective tariff, 218 
restricting bank credit, 199 
One hundred percent reserve, 1 58n, 
185, 187, 195, 198, 203, 207, 243 
“One of the People— A Farmer,” 150, 

Overton, John, 72n 

Paley, William, 152 
Parks, Joseph H., 68n, 69n, 70n, 71n, 
72n, 122n, 123n, 124n, 128n, 201n, 
202n, 253n, 254n 
Pearce, Matthew, 1 86 

debtors’ relief, 55-58 
internal improvements, 251—52 
protective tariff, 215—18 
restricting bank credit, 193—96 
“Pennsylvanian, A,” 57—58, 58n, 196, 
196n, 226, 226n, 236n 
Phillips, Willard, 31, 31n, 249 
“Philo-Economicus,” 93, 93n, 181n 
Pickens, Israel, 83-84, 84n 
Pinckney, Charles Cotesworth, 161—62 

Pindall, James, 205 
Pintard, John, 13n, 234, 234n, 236n, 
257, 257n 

Pittsburgh Manufacturing Associa- 
tion, 217 

“Plain Sense,” 192—93, 192n 
Plumer, William, 197 
Poindexter, George, 85, 85n 
Polk, James IC., 202, 248 
Polk, Josiah F., 97 
Polk, William, 90 
Poor relief, 255, 255n 
Pope, John, 80n, 132, 133n 
Post office, 21n 
Povall, Richard, 218 
Presbyterian Church, General Assem- 
bly of the, 34, 34n 
Preston, James R, 33n, 55 
Prices, 5-9, 12, 15, 19-20, 21, 25, 55 
Primm, James Neal, 62n, 63n, 66n, 
67n, 120n 
Pryches, Julien, 173 
“Public Good,” 229 
Public land sales, 10—12, 21, 81, 115, 

Raguet, Condy, 16, 16n, 17n, 24n, 57, 
57n, 101, 101 n, 194-95, 195n, 228, 
228n, 248-49 
Randall, Josiah, 251 
Randolph, John, 121n, 227n 
Randolph, Thomas Jefferson, 184 
Raymond, Daniel, 187, 187n, 221, 
232n, 249 

Reeder, James, 56, 56n 
Religion, 34 

Replevin Law. See Stay laws 
Rezneck, Samuel, vi, 24n 


The Panic of 1 81 9 

Rhode Island 

debtors’ relief, 52 
protective tariff, 222 
restricting bank credit, 197 
Ricardo, David, 16, 16n, 166, 250 
Rich, Wesley E., 21n 
Ritchie, Thomas, 165—68, 181, 182n, 

Rives, William Cabell, 53, 54n, 184 
Roane, Spencer, 181n, 182—84 
Robertson, George, 44, 46, 137 
Rowe, John J., 59n, 106n 
Ruffin, Edward, 227n, 228n 
Runnels, Barman, 85, 85n 

Salt cartel, 257n 
Savings banks, 33, 256 
Say, Jean Baptiste, 250 
Scharf, J.T., 5n, 8n 
Schur, Leon M., 208n 
Scott, WR., vn 
Sears, Alfred B., 21 8n 
Secrist, Horace, 7n 
Selden, William, 54 
Sellers, Charles G., Jr., 69n, 70n, 71n, 
72n, 123n, 124n, 130n, 202n 
“Senex,” 33n, 173, 173n, 191, 191 n 
“Seventy-Six,” 169 
Shannon, George, 142 
Sheldon, J.P., 201n 
Shoemaker, Charles, 218 
Silsbee, Nathaniel, 233, 233n 
Silver revaluation. See Gold and Silver 
Slaughter, Gabriel, 76n, 137, 203 
Small notes, 82,115,145,179 
Smith, Adam, 171, 171n, 181n, 187, 
213, 232n 

Smith, George G, 86n 
Smith, Samuel, 237 

Smith, Walter Buckingham, 5n, 6n, lln, 
12n, 15n, 17n, 18n, 19, 20n, 21n, 25n 
Snyder, Simon, 102, 195—96 
Societies for promoting United States 
manufactures, 210, 21 On, 21 In, 212, 
217, 222 

South Carolina, 88—89 
South Carolina, Bank of the State of, 
88, 89n 

South Sea Bubble, 41 
Specie exchange standard, 151 
Specie export, prohibition of, 169-72 
Specie payment clauses, 180 
Specie payments, suspension of, 4—5 
Speculation, 13 
Speed, Thomas, 141 
Spencer, John, 204-05, 20 5n 
Stay laws, 47-80, 244, 259-61 
Sterns, Worthy P., 6n 
Stevenson, Andrew, 54n 
Stickles, Arndt M., 76n, 77n, 136n, 
137n, 145n, 204n 
Stock exchanges, 14 
Stokes, Howard K., 52n 
Stonecipher, Frank W, 216n, 225n 
Story, Joseph, 228, 233 
Stout, Elihu, 109 
Stout, Jacob, 256n 
Stuve, Bernard, 61 n, 115n 
Sullivan, William A., 24n, 257n 
Sumner, William Graham, 13n, 76n, 
88n, 99n, 106n, Bln 
Sumptuary laws, 31n 
Sutton, George, 217n 
Swan, James, 160, 160n 
Swartzlow, Ruby J., 19n, 20n 
Sydnor, C.S., 220n 



Tammany, Society of, 188-89, 188n, 
207, 222 

Tariff, movement for protective, 
209-39, 245-46, 156n, 247n 

infant industry argument for, 224 
Tariff of 1816, 239, 245 
Tariff of 1824, 226 
Taylor, George Rogers, In, 13n, 15n, 
18n, 251 

Taylor, John, of Caroline, 198, 226, 
227n, 22 8n, 230-31, 234 
Taylor, M. Flavia, 217n 
Teackle, Littleton Dennis, 1 58 
Tennessee, Bank of the State of, 69n, 


debtors’ relief, 68 
restricting bank credit, 201 
Thomas, Jesse B., 38, 39-40, 40n, 42n 
Thompson, John H., 110 
Thompson, Robert T., 54-55 
Tompkins, Daniel D., 210 
Tracey, Destutt de, 181 
Tracy, Albert H., 237 
Trade. See Exports; Imports 
Transportation, 229 
Tregle, Joseph George, Jr., 85n, 232, 
Trimble, David, 205 
Trimble, William A., 235 
Tucker, George, 249 
Tucker, Nathaniel Beverly, 121, 121n 
Tucker, Rufus S., 23n 
Turnpikes, 13, 29 
Tyler, John, 205n, 233, 233n 

Ulshoeffer, Michael, 1 90 
Underwood, Joseph R., 131n 

Unemployment, 24, 27, 41, 116, 213, 
221,246, 251 
Usury laws, 70, 253-55 

Value, subjective, 79 
Van Buren, Martin, 38n, 69n, 192, 
207, 248 

Vance, Joseph, 219 

Van Dyke, Nicholas, 42 

Van Ness, Cornelius Peter, 99, lOOn 

Van Ness, William Peter, 189, 189n 


debtors’ relief, 51 
monetary expansion, 99 
restricting bank credit, 197 
Vethake, Henry, 249 

debtors’ relief, 52 
monetary expansion, 94 
restricting bank credit, 181—85 

Wage rates, 23-24, 257 

Walker, John W., 38, 42, 42n 

Wallace, David, 127 

Walsh, John J., 18n 

Walsh, Robert, 67 

War of 1812, 241, 245 

Ward, Edward, 74, 130 

Ware, Caroline E., 8n, 19n, 23n, 25n 

Wayland, Francis, 249 

Webster, Daniel, 230n 

Weems, Robert C., 85n 

Westcott, T., 5n 

Westerfield, Ray B., 7n, 236n 

Whisky, 22 

Whitely, Henry, 48, 220 


The Panic of 1 81 9 

Whiting, Ruggles, 119 
Widen, Raphael, 112 
Wiley, Hugh, 142 
Williams, William, 70, 73-74 
Willis, Thomas, 121 
Wilson, George, 72n 
Wilson, Samuel, 76n, 78n, 145n 
Wismer, D.C., lOn, 18n 
Woodward, John, 188, 189n, 222, 
222n, 255, 255n 

Wolcott, Oliver, 150, 150n, 161n 
Worthington, Thomas, 106, 106n, 
218, 255 

Wright, David McCord, 249 

Yeatman, Thomas, 123, 123n 
Young, Arthur, 155n 
Young, Richard M., 112 

What appeared to be prosperity from 
1813-1818 was nothing but a bubbee 


finance. It was unsustainabee. And 
the Panic of 1819 was the resuet. As 
Rothbard shows there was no wide- 


Mt downturn. Instead, it was wideey 


dangerous thing. It aeways turns to bust. The Second Bank 
of the United States, authorized to issue note, had fueeed 


New York Stock Exchange was founded in 1817: born in a 
bubbee. But because there was no intervention, the panic 


“Rothbard's work represents the oney pubeished, book-eength, 

historian who is interested in the earey economic DEVEEOPMENT 
of the United States/ — American Economic Review 

Ludwig von Mises Institute 
5 1 8 West Magnolia Avenue 
Auburn, Alabama 36832-4528 

ISBN 978-1-933550-08-4 

9 781 

933 550084